Steel Industry

HC Deb 28 July 1981 vol 9 cc1097-135

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Before the Minister rises, I should inform the House that Mr. Speaker has selected the amendment in the name of the Leader of the Opposition.

10.53 pm

The Minister of State, Department of Industry (Mr. Norman Tebbit)

I beg to move, That this House takes note of European Community Documents Nos. 7305/81 and 7847/81 on production quotas for steel, No. 7306/81 on state aids to the steel industry and No. 7825/81 on pricing rules for steel distributors; and welcomes the agreement reached in the Council of Ministers on 24th June as being in the interests of the steel industry. I should apologise to the House for making a rather longer speech than I should wish at this time of night, or at any time. These are complicated matters and there should be a full explanation of them on the record, even if the House is not overfull to discuss them.

The debate focuses on four European Community documents which have been recommended for debate by the Select Committee on European legislation. They form the basis for the package of Community measures to combat the continuing crisis in the steel industry, on which the Council of Ministers reached agreement ad referendum at its meetings on 4 June and 24 June which I attended. In passing, I should say that both meetings were long, arduous and difficult.

The agreement was subsequently confirmed by written procedure but I maintained a reserve pending parliamentary consideration of the decisions on State aids to the steel industry and en the extension to distributors of the ECSC pricing rules.

As I have explained to the Chairman of the Select Committee, I did not feel that I could place a parliamentary reserve on the renewal of quotas under article 58 of the ECSC Treaty for certain products since I judged it imperative to ensure that final approval was given before the previous quota arrangement expired on June 30. I hope the House will agree that in doing so I acted in the best interests of the United Kingdom and of our steel industry.

This is an important and extensive package of measures which may conveniently be considered under four headings—production restraint during the present extremely difficult market situation, prices rules, State aids and the restructuring of the steel industry and the social consequences of steel redundancies.

Before discussing the measures in detail, I hardly need to remind hon. Members of the persistent problems besetting the European steel industry in the last few years. Basically, they are the result of excess capacity resulting from substantial investment, much of it State-financed, combined with a much lower demand than expected. The result has been uneconomically low prices for steel.

In January I explained to the House the sudden aggravation of these problems last summer, in particular the rapid fall in demand and the slump in prices. The accompanying breakdown of mutual confidence between producers resulted in the declaration of a state of manifest crisis by the Commission and the introduction, with the Council's unanimous assent, of mandatory production quotas under article 58 of the ECSC Treaty for most ECSC products.

These measures were introduced for a period of nine months only, to expire on 30 June, by which time it was hoped that the market would have stabilised sufficiently to allow prices to rise to more realistic levels.

There has been some improvement, but it is unevenly spread and inadequate because of the continuing excess capacity and depressed demand while, on the other hand, costs continue to rise. It became evident not only that a continuation of anti-crisis market restraint measures was necessary but that, to secure a longer-term solution, more needed to be done on a Community basis to eliminate the excess capacity over foreseeable demand, which is the underlying cause of instability. It would be necessary to eradicate the artificial retention of excess and inefficient capacity which has been, and still is, encouraged with subsidies.

I should like to turn in more detail to the measures which make up the new package. Document 7305/81, besides reporting generally on the state of the steel industry, contains a proposal for the renewal of quotas under article 58 for hot rolled steel coil and the products derived from it. We, and indeed the Governments of member States generally, prefer necessary production restraint to be maintained by voluntary agreement between the producers, provided that that is on a fair and effective basis.

The Community producers had been meeting regularly since early in the year in an attempt to reach such voluntary agreements, observance of which could be monitored by the Commission using the administrative machinery set up to oversee the operation of the mandatory quotas.

By mid-May, however, ft was clear that, although a large measure of agreement had been achieved, the operation of voluntary restraint would not be possible for hot rolled coil and derivatives, the largest product category, accounting for about half of Community ECSC total production, because of the unwillingness of one German firm to accept the necessary reduction in output. It was vital to ensure that a workable arrangement for this sector would continue to exist after 30 June, and the Council therefore agreed on 4 June to a renewal of mandatory quotas for a further 12 months.

The new quota system contained in Commission decision 1831/81 published on 1 July has a revised reference base which will greatly reduce the additional entitlement previously given to some Continental producers. Arrangements are needed between the producers to compensate for any disadvantage suffered by the British Steel Corporation as a result of reduced production during the reference period due to the strikes.

The key to the quotas and the calculation of them is an immensely complicated basis. The Eurofer discussions, to which the Government were not a party, involved long and difficult discussions. Misunderstanding about the effect of the proposals arose from time to time. None the less, arrangements have been made for the third quarter, but further discussions will be needed to cover subsequent periods.

After intensive producers' discussions, with Commission help, a satisfactory basis was found for a workable voluntary agreement covering the next two categories—heavy plates and heavy sections. In the remaining category, covering light sections comprising wire rod, reinforcing bars and merchant bars, the position was complicated by the more substantial share of production in the hands of the smaller independent producers. No agreement was possible on reinforcing bars and merchant bars.

In accordance with the views expressed in the Council on 24 June, the Commission proposed in document 7847/81 dated 29 June extension of article 58 quotas for these products also, and the Council has given formal written assent. As in the case of hot rolled coil, I considered that it was necessary in the interests of market stability to avoid delay in giving United Kingdom consent and regretfully I felt that it would not have been desirable to enter a reserve pending parliamentary scrutiny.

The Commission's decision in 1832/81 was published on 4 July and maintains the provision for the issue of Commission guidelines for the special steels not covered by quota ceilings, an aspect to which the British Independent Steel Producers Association, with which we have maintained close contact, attaches particular importance. Such guidelines have been issued under the previous article 58 arrangements, including special provision for a reduction in production for export to the United Kingdom market.

In the case of wire rod, a limited measure of voluntary agreement was achieved and the Commission, supported by a number of member States, wished to see the effect on the market, which is to be monitored closely. It relates, however, only to the third quarter and most of the United Kingdom industry is only prepared to accept an arrangement that would offer a better coverage and tighter production restraint. We shall wish to see that further consideration is given to the state of the market and that the Commission should put forward appropriate proposals for further action.

The important short-term objective is to secure an increase in the price of steel in the Community market. The prices recently have been lower than in either the United States or Japan and below the costs of even the most efficient producers. In parallel with production restraint, the Community producers are raising their prices in the second half of the year by 10 to 15 per cent.

It is important that these increases are not undermined through price cutting by those seeking a temporary advantage. On the other hand, mandatory prices under article 61 of the European Coal and Steel Community Treaty are difficult to fix at the right level and cumbersome to operate and enforce.

The Commission is, however, to support the market by enforcing more strictly the pricing rules under article 60 which require the publication of price lists, nondiscrimination between customers and alignment only in accordance with specified conditions. The aim is to eliminate the widespread unpublished discounting that has been taking place throughout the Community.

The Commission has, moreover, rightly considered that pricing transparency will be made more effective if distributors are required to publish price lists and refrain from hidden discounting. Article 63.3 of the Treaty empowers the Commission to make binding recommendations to member States to ensure that the pricing rules are observed by distributive undertakings. But the implementation by member States of such a recommendation, involving national subordinate legislation, will naturally take some time. It is inevitable that some member States will take longer than others to introduce an effective system.

Document 7825/81 contains the Commission's proposal for a decision requiring the larger dealers to publish their prices and conditions of sale and to transmit them to the Commission. They would be liable to checks by Commission officials to ascertain whether unauthorised discounting of these price lists had taken place. I recognise that any extension of powers in the area of entry and inspection is a sensitive issue, but I am not aware of any difficulties experienced with other Commission inspections involving similar powers under the Treaty which are normally carried out with the consent of the firms concerned.

The extension of these pricing rules to distributors is supported not only by the United Kingdom steel producers but also by the stockholders. They recognise the need for adequate powers of inspection. They and the producers consider that the measures should include even the smaller distributors, although the Commission, which was concerned about the administrative burden, believes that the measure can be effective by covering the larger firms accounting for the bulk of the trade.

The Government have drawn the Commission's attention to the industry's concern and are supporting representations made to the Commission by the National Association of Steel Stockholders for a lowering of the limit.

Sir Anthony Meyer (Flint, West)

I am sure that my hon. Friend is aware of the strong feeling that is entertained by the steel stockholders about the arbitrary figure that has been chosen as the cut-off point. I am sure that he did not mean to play down the extreme anxiety that they have been displaying on this score to many of my hon. Friends in recent representations.

Mr. Tebbit

I take my hon. Friend's point. Any cut-off is bound to be to some extent arbitrary. I do not play down the concern of the trade. That is why the Government have drawn the Commission's attention to the industry's concern and will be supporting the representations that were made to the Commission.

The limit to be placed on the size of undertakings to be covered by the measure was dealt with at about four o'clock in the morning after an extremely long and arduous session in the Council of Ministers. Agreement had been reached only with the greatest difficulty. I consider that we should not have argued at that stage over what was the precisely correct level at which to set the limit. All members of the Council of Ministers were inclined to accept the Commission's recommendation at that stage of a limit of 12,000 tonnes a year to enable an agreement to be made that night.

Mr. Michael Brown (Brigg and Scunthorpe)

When my hon. Friend referred to the document and the decision, I, too, had the distinct impression that there was considerable apparent agreement in the Commission. It appears that the reason for the agreement was an arduous debate that took place earlier. I have the impression that this measure may have slipped through in everyone's anxiety not to frustrate the earlier agreement. I, too, must emphasise that there is deep concern and anxiety on the part of the National Association of Steel Stockholders about the cut-off. What form is my hon. Friend's support for its representations likely to take?

Mr. Tebbit

It is more a matter of the form that it is taking. I have told vice-president Davignon of our belief that the 12,000 tonne limit is too high for the British industry. It may be adequate for the industries of other countries that have a different structure. It is our belief—I have emphasised this to vice-president Davignon—that our limit should be lower even if the present limit is correct for other countries. It is my intent to persuade him that that is right and that we should reduce the limit.

I am not persuaded that the measures will be fatally flawed if we retain the present limit of 12,000 tonnes. I think that they would be fairer and more effective if we had a lower limit.

Dr. John Cunningham (Whitehaven)

Is not the danger in this problem that those who escape the limit will be able to escape the restrictions and undercut pricing and undermine the agreement generally?

Mr. Tebbit

One has to consider where the weight of the industry lies and to question from where steel could be obtained at prices that would enable undercutting to take place. I think it unlikely that our major steel producers will be willing to try to supply steel at excessively low prices to those stockholders in order to discount.

Dr. Cunningham

They could import.

Mr. Tebbit

Of course, they could import, but the same is true there. Excessive discounting would be unlikely, and there are measures within the Community to help deal with that. Moreover, imports from third countries outside the Community are almost all closely controlled in one form or another, mostly by voluntary restraint arrangements.

The arrangement, as I said, is not perfect. We should all agree about that. However, I do not believe that it is fatally flawed by what I frankly admit is an imperfection of this sort. We shall do our best to put it right.

As I said, article 63.3 of the Treaty gives the Commission a specific power to issue binding recommendations on this subject. This is, therefore, the appropriate way to proceed. However, the legal advisers to the Commission and the Council have advised that the urgency of dealing with the market situation to achieve the objectives of the Treaty justifies a temporary use of a decision under article 95.1, which covers cases not otherwise provided for in the Treaty. This decision will, therefore, operate only until 30 June 1982. The Commission has, in error, published the decision 1835/81 on 4 July, despite the reserve which I recorded pending completion of parliamentary procedures. However, in response to our protest, it recognised that this reserve is still in force.

At the same time, the Commission issued recommendation 1835/81, requiring member States to give effect nationally to a similar measure from 1 July 1982. An order under the European Communities Act 1972 will be introduced during the next Session to implement the recommendation.

I have talked so far about measures to improve the current market situation with the objective of raising prices sufficiently to enable really efficient undertakings to cover their costs. However, such market restraint measures, which might be crudely called a cartel, can provide no secure long-term solution. That must depend on remedying the structural imbalance and closing the gap between capacity and demand in a way that leaves a modern and streamlined industry capable of operating viably and competitively in the sort of market environment that must be expected.

I and my European colleagues were in agreement that Government subsidies incompatible with the ECSC Treaty, which have encouraged the creation and retention of unviable capacity, should be progressively eliminated. It can be to the advantage of no one for Governments to be drawn into subsidisation to maintain capacity and production in excess of market requirements

Dr. Cunningham

Tell that to the Germans.

Mr. Tebbit

It is the Germans who have been in the lead in pressing for these measures to eliminate subsidy. If the hon. Gentleman believes that the Germans are an the van of the subsidy game in the steel industry, I beg him to think again—either indirect or direct subsidies.

Mr. Allen McKay (Penistone)

Surely, the subsidy in transport costs, fuel costs and coking coal costs in Germany is not a direct subsidy but an indirect subsidy. That is what counts in the long run.

Mr. Tebbit

I understand that the subsidy on coking coal in Germany is one which reduces the price of German coking coal to that which is available on the open market in the world, and which they could otherwise import freely. I am sure that the hon. Gentleman would want British Steel to have access equally to best-quality coking coal at world prices.

Mr. Peter Hardy (Rother Valley)

In addition to the coking coal subsidies, is not the Minister aware that the price of electricity that is paid by the German steel industry is substantially lower than it is in Britain? In the constituency of my hon Friend the Member for Rotherham (Mr. Crowther) and mine there are a number of steelworks, and in each of those works—the steel is made by the electric arc furnace method—the electricity bill is £5 million a year more than in the French and German steelworks of comparable character.

Mr. Tebbit

To say that somebody can obtain something for a lower proce in one country than in another is not to prove that the commodity is subsidised. It could be that the German electricity industry is more efficient than ours. I do not say that it is, but I beg the hon. Gentleman not to rule out that possibility. I also beg him to take into account the probable scale of these matters and to share with me the guilt that we must all have of having had to subsidise the British Steel Corporation last year to the tune of £660 million of loss. That is not a minor subsidy. It cannot be washed away against a subsidy on coking coal and transport on railways.

Mr. Teddy Taylor (Southend, East)

My hon. Friend eloquently responded to that point. Is it the Government's view that British Steel should have access to coking coal at world market prices? Does he intend to ensure that it obtains that?

Mr. Tebbit

The questions of the supply of coal to the BSC and the prices that are charged for coal in Britain are more appropriate for my right hon. Friend the Secretary of State for Energy, to whom I hope that my hon. Friend will address his question.

The phasing out of aids and the elimination of excess and uncompetitive capacity can be done only on the basis of multilateral agreement if the burden of the necessary restructuring is to be fairly shared. It would be impossible for Britain to achieve a unilateral solution outside the Community.

The existing decision 257/80 covered only specific aids, did not provide adequate arrangements for the phasing out of aids incompatible with the Treaty, did not link them sufficiently with capacity reduction, and in any case was to expire at the end of this year. Document 7306/81 contains the Commission's draft of a new, stricter decision to rectify those problems. In the form eventually agreed ad referendum in the 24 June Council, the new decision will operate until the end of 1985 and no payment of aids contrary to the Treaty may take place after then, other than by way of interest rebates or payments to honour guarantees on loans disbursed previously. Only aids compatible with the Treaty will be possible after 1985. Emergency aids must not last longer than six months and may not be authorised after 31 December 1981. The Commission must be given prior notice of all proposed aids and no notification may be made later than 30 September 1982, excepting aid for unforeseen closures. Operating aids must be degressive, not last more than two years and not involve payments after 31 December 1984, other than in exceptional cases on which the Commission and member States had reached a consensus. Aid may be approved by the Commission, except for emergency aid and closure aid, only when it is linked to a restructuring programme that includes net capacity reduction.

The decision is of crucial importance in the concerted Community attempt to restore the steel industry to profitability and competitiveness. Although the timetable for the phasing out of aids in the decision is a tight one, it is consistent with the target set for the British Steel Corporation to achieve break-even in the year 1982–83. The linking of State aids and net capacity reduction is an essential feature of the measure, and one to which we attach particular importance since the effect of the substantial closures already made in the United Kingdom industry must not be undermined by failure to reduce capacity in other member States.

There is provision in the decision for the Commission, with the unanimous consent of the Council, to amend it if, in due course, circumstances such as changes in other Community policies affecting iron and steel make that necessary.

The decision is being taken under article 95.1 of the Treaty. I have entered a reserve pending completion of parliamentary procedure. In doing so I was conscious both of the importance of the subject and of the statement by my predecessor to the House in October 1979 that any extension of the previous decision beyond December 1981 would require a Treaty amendment.

Mr. Stan Crowther (Rotherham)

I am a little puzzled by precisely what the reserve means. Bearing in mind that the Government are asking the House only to take note of the documents and to welcome the agreement, does it mean that, if the House declined to take note and to welcome the agreement, the agreement would cease to have effect? Is that what the reserve means?

Mr. Tebbit

It would require more than a failure to take note, because a take-note debate is rather peculiar, as the hon. Gentleman knows. Were the Opposition or the Government to move a more substantive motion, and were it to be carried, it would mean that the agreement which I gave in the Council would not have been endorsed by Parliament.

Mr. Stanley Orme (Salford, West)

rose—

Mr. Tebbit

I shall give an explanation to the right hon. Gentleman before he gets it wrong. None of the decisions on which I laid a parliamentary reserve have gone ahead. The ones on which I did not lay a parliamentary reserve are going ahead. For the others, preparations are being made and things are happening, but that could not continue if we decided that we could not go through with it.

Mr. Orme

Taking into account what the hon. Gentleman has said, does it mean that, where we are taking note and where he has given a reserve, he must bring forward substantive legislation to deal with that?

Mr. Tebbit

I have already explained the matter. I hope that the right hon. Gentleman will not press the point too far, because it could be considerably to our disadvantage in a number of discussions in the Community. If he were to go back and ask his right hon. and hon. Friends, who used precisely the same procedures, whether they thought that that was the right way to go about it, I believe that he would find that they were in agreement with the Government about the way in which we handle these matters now. I believe that they would also suggest that it would not be best if we pressed the point too far in this area as it may leave us with less of a tactical advantage at times in the Community than we have now.

As I was saying, the new decision is being taken under article 95.1 of the Treaty. I have entered a reserve pending completion of these procedures. It is true that the decision, like its predecessor, gives the Commission power to approve aids granted by States that are clearly contrary to article 4(c) of the ECSC Treaty. But, given that the new decision is of a temporary nature providing for the phasing out and ending of all aid that is contrary to the Treaty and that it is in pursuit of a Community objective—the competitive viability of the steel industry—consistent with article 2 of the Treaty, we have judged it inappropriate to stand out alone for the lengthier process of Treaty amendment which could only have delayed a measure that is urgently needed.

The reduction of capacity and employment, while a necessary part in restoring the health of the steel industry, is a painful process but one which can also benefit from Community measures to alleviate the social problems involved and encourage the provision of alternative employment.

I remind the House that under article 56 of the ECSC Treaty the Community already acts in two directions. It provides readaptation grants covering about half the cost of member Government schemes for providing income support for redundant ECSC steel workers. Under the Iron and Steel Employees Readaptation Benefit Scheme—ISERBS—the United Kingdom has become a major beneficiary of such Community contributions, to the tune of over £80 million to date.

Secondly, the Community provides loans towards the cost of projects providing alternative employment to redundant steel workers, in many cases with the benefit of interest rebates financed from the ECSC budget. Again, the United Kingdom is a major beneficiary; projects in the United Kingdom accounted for nearly half—430 million ECUs—of the reconvresion loans, and approaching twofifths-35 million ECUs—of the interest rebates approved between 1975 and 1980.

As I explained to the House on 15 January last, the Government have strongly supported Commission proposals that in addition there should be a Community contribution towards expenditure by member States in financing early retirement, including severance payments, and short-time working, with the proviso that the latter should be linked to restructuring, which is necessary to bring capacity into line with demand. I am glad to report that the Council has finally agreed to Commission proposals that 112 million units of account in 1981 and 100 million units of account for the years 1982–84 should be made available for such aid.

The member States agreed that they would make special contributions to the ECSC budget of 50 million units of account as an initial tranche towards the financing of this aid, using a similar key to that used in earlier member State contributions to finance the ECSC budget deficits which arose from the heavy increase in readaptation grants and interest subsidies on reconversion loans. The United Kingdom share was a little under 17½ per cent. There is no reason to suppose that the United Kingdom would not again receive a net financial benefit since we have already submitted applications totalling 178 million units of account—or nearly £100 million. The United Kingdom's approval was, of course, given subject to completion of parliamentary procedures, and next Session an order under section 1(3) of the European Communities Act 1972, which will have the effect of enabling the United Kingdom share to be paid, will be submitted for the approval of Parliament.

The financing of the balance of the cost of the measure will be subject to further discussions in the Community.

Mr. Teddy Taylor

Is my hon. Friend aware that in reporting these concessions tomorrow's Financial Times, a copy of which has just arrived, also contains a report that the Commission has withheld approval of £560 million of the Government's steel recovery plan? In view of what my hon. Friend said a few minutes ago, does that mean that when the Commission finally agrees the £560 million, it could make it a condition that capacity be reduced to below 14.4 million tonnes?

Mr. Tebbit

I am not unduly perturbed at the fact that at present we have not received final clearance from the Commission for the initial stages of the BSC recovery plan. Under the Treaty provision, it would be possible for the Commission to refuse consent to the funding of the recovery plan. However, I believe that the plan is sound and that it will gain the agreement of the Commission. I hope that we will be able to announce some progress before too long.

Mr. Taylor

I apologise for interrupting again, but this is important. In view of what my hon. Friend said a few minutes ago about the powers at present being considered to link aid with demands for a reduction in capacity, and in view of the Commission's refusal of the £560 million, does that mean that when it is finally approved the Commission could demand a reduction in our capacity below 14.4 million tonnes?

Mr. Tebbit

I know nothing about a refusal by the Commission.

Mr. Taylor

That is what the Financial Times said.

Mr. Tebbit

I am not responsible for what appears in the Financial Times. I have not yet received the Commission's consent, but l have received no notice of its refusal. As my hon. Friend knows, under article 4 of the Treaty, it is forbidden to conduct these programmes of subsidisation. The power exists, and has existed, but it has not been capable of being used in the past because, in my view, the Treaty has been abused. We now have agreement within the Community on the matters to be taken into account by the Commission in considering whether, as a temporary derogation from the Treaty, these forms of State subsidisation should be allowed. I hope that that answers my hon. Friend's question.

Mr. Taylor

Does it mean that the Commission could say later "You will have £560 million only if you reduce capacity below 14.4 million tonnes"?

Mr. Tebbit

The Commission could say "No money at all unless you eliminate the whole of your steel industry." That could be said to any member of the Community. What my hon. Friend must ask himself is not what is theoretically possible if members of the Commission take leave of their senses but what is reasonably likely.

I need hardly say that the Government very much welcome the agreement now reached in the Council on the new measure. I refer to the social funding. The action demonstrates that the Community is rightly concerned about the social implications of steel closures, and the measure should be seen as a necessary part of the total package. I should stress that it will in no way supersede or diminish the existing aid available under article 56 of the ECSC Treaty.

Document 7305/81 indicates that the Commission intends in addition to concentrate more closely on measures designed to help generate new employment, in particular in areas where there has been a substantial loss of steel jobs. First, the Commission is examining ways of expanding its activity under article 56, with the aim of increasing the volume of reconversion loans and interest rebates for projects providing employment in areas of coal and steel decline. It is also considering other possible ways of assisting job creation, both specifically under ECSC auspices and in the longer run more generally as part of the social fund's regular activities. We await with interest the new proposals from the Commission to this end and should, of course, give them careful consideration.

The package of steel measures as agreed as a result of the Council meetings in Luxembourg on 4 and 24 June is a substantial achievement, which illustrates how member States of the Community are able to work together to find common solutions to common problems. The Community demonstrated its ability to reconcile the different interests of member States and reach an agreement which should be of lasting benefit to the European industry. In an international market such as steel, there could he no effective unilateral solution. On our own, without the Community, we could not have acted in the same way. But as members of the Community we were able to take advantage of its economic strength to produce an outcome of mutual benefit to all member States. [HON. MEMBERS: "Oh."]

Let me be more correct. We could reach a unilateral agreement to impose these measures on ourselves, but we could not force, persuade or influence other people's steel industries to undergo the same sort of treatment. We should be left isolated in these matters.

I am almost at the end of my remarks. I said at the beginning that I was sorry that I should have to speak for longer that I wished, because these are complex matters.

At this stage I must say something about the Opposition amendment—briefly, because that is all that it deserves. I do not believe that the right hon. Member for Salford, West (Mr. Orme) and the hon. Member for Whitehaven (Dr. Cunningham) are serious in putting it on the Order Paper. I believe that they are gently pulling our legs. I only hope that they are not deluding themselves.

One cannot simply say on the night of 28–29 July that there shall never be any further reductions in the capacity of the United Kingdom steel industry. It would be a very silly thing to say, and I do not believe that the right hon. Gentleman or the hon. Gentleman is that silly. They know perfectly well that if there is a further fall in demand for steel it may one day be necessary to make further reductions in capacity. What else would they do—have their own private steel mountain? It is absurd to put such a proposition on the Order Paper.

Mr. Frank Hooley (Sheffield, Heeley)

I am grateful to the Minister for giving way. He has been very generous. Is he aware that other countries in Europe, such as Italy and Spain, have for years been steadily increasing capacity and still are, and are sending their steel to our market? The Minister talks as though there will be no market for British steel in this country in the next few years.

Mr. Tebbit

Is the hon. Gentleman aware that the measures that we have agreed within the Community apply not only to the British industry but to the Italian, German, French and Belgian industries—

Mr. Crowther

That is not true. They do not apply to Italy.

Mr. Tebbit

The hon. Gentleman must not become over-excited. I said that the measures that we have agreed apply across the Community. Every Community State will have to get the agreement of the Commission in order to finance its steel industry. It is simply no good the hon. Member for Rotherham (Mr. Crowther) shaking his head.

I am confident that the House will agree that the Community measures on production quotas for certain steel products, on the phasing out of aids to the steel industry coupled with the necessary restructuring and on the more stringent application of the pricing rules and their extension to merchants are in the best interests of the steel industry and, indeed, of the economy at large.

11.36 pm

Dr. John Cunningham (Whitehaven)

I beg to move, to leave out from "distributors" to the end of the Question and to add instead thereof: but declines to accept further reductions in steel manufacturing capacity in the United Kingdom. I had considerable sympathy with a great deal of what the Minister said until his throwaway remarks about the amendment. He has presented for the agreement of the House a package of measures containing certain terms and conditions for which he has no doubt worked very hard in the EEC. All that we are attempting to do from the Opposition Benches—we do not apologise for doing so—is to make it a condition of accepting those measures, some of which will be beneficial to us and some of which will not, that there should be no further rundown in our steel industry until some of our EEC partners have put their own houses in order.

That is the purpose of our amendment. It is legitimate and, in view of the intervention by the hon. Member for Southend, East (Mr. Taylor), apposite. It is most important to the British Steel Corporation and to the workers in the industry. I therefore regret the Minister's knockabout remarks about the amendment. It is, I suppose, too much to expect the Government to accept it, but it is worthy of a great deal more serious consideration than he gave it, in view of what is contained in the documents that the Minister is presenting to the House.

Mr. Tebbit

We should have had a more interesting debate if the hon. Gentleman had tabled the amendment that he has just described. I have every sympathy with the spirit of the amendment, and I certainly have every sympathy with the hon. Gentleman's comment that we should not cut back our steel industry further under compulsion from the Commission until we have seen evidence of the same sort of thing happening in the industries of other States.

Dr. Cunningham

In that case, if the Minister would like to submit a manuscript amendment that framed our amendment in his terms, I am sure that we could agree on it. But I think that he is wriggling a little and is trying to engage in a discussion about words. He knows full well the purpose and intent of our amendment. I am pleased that he has had the grace to put on record his agreement with the spirit of the amendment, if not its wording. Of course, this is a highly serious matter for the Opposition, and I do not apologise for tabling our amendment.

It must come as a great surprise to many Conservative Members to find the Minister of State and the Secretary of State, whom I am pleased to see here, engaging in the kind of organisation of the steel industry that is now taking place in Europe. It is a mark of just how far it is possible for some people to move when faced with the realities and necessities of the circumstances.

Throughout the Minister of State's long speech—I make no complaint about the length, as he is right to say that these are complicated matters and he made a good job of explaining the details of them to the House—we heard nothing about market forces or free enterprise. We heard, instead, about the necessity to organise prices, to organise production quotas and to organise and control the way in which the Governments assist or do not assist industries, all of which is welcome in principle, if not in detail, to the Opposition. That speech, with the labyrinth of detailed scrutiny and control that is needed in the steel industry, is indicative of the complexity of the problem that the European steel industries face and the parlous state of the steel market in Europe. I see the Secretary of State nodding in agreement. It must be anathema to him to embark upon this course of action.

Even though we welcome that small conversion—I am not so optimistic as to think that it will be allowed to spread—we have some reservations about what has been agreed. In saying that, I hope that the Minister of State will accept that it is regrettable that some matters were agreed before being discussed in the House. I say that in defence not just of the Opposition but of the House generally.

Clearly, the existing arrangements, which were a mixture of compulsory and voluntary quotas, reflected the failure of producers in the areas subject to them to reach voluntary agreements. The basis of the original approach was that Eurofer had failed to reach any agreement which could be made to stick. Even when agreements had been reached, there was a great deal of what one might call, to put it politely, failure to comply with the agreements. This country in particular has paid a heavy price for the failures of those agreements. I include in that the whole of the British steel industry, both public and private.

It is perhaps opportune that we are discussing this matter at this time. As the hon. Member for Southend, East said, at about this time we should be hearing the Government's view of the MacGregor plan and its working or otherwise. We know, however, that that consideration has been put back. One reason for that is probably the extended consideration of it within the EEC.

Given that we have gone much further than many of our competitors, the House is entitled to say that it ill becomes the Commission to spend so much time looking as though it is intent upon holding up the reorganisation and financial reconstruction of our industry when it apparently spent so little time and effort dealing with some of the glaring anomalies and weaknessess, if not downright denials of what is supposed to be happening in other countries' steel industries. I hope that the Minister of State will make that point forcefully to the Commission when he next meets its members. If he does, he will certainly have the support of the Opposition.

Towards the end of the six-month life of what is called Eurofer I voluntary agreements were sought, but it was obvious that some producers, notably the West Germans, were not inclined to reach any agreement. Given the disastrous effects of what took place last year on the stability of the market and on pricing, we strongly support the reintroduction of a compulsory system and the use of all the powers at the Commission's command to see that any agreement is made to stick and to work fairly throughout the Community.

It is no secret that price cutting was taking place on a cut-throat, suicidal level, and nowhere was it having a more devastating effect than in areas such as special steels. My colleagues from Rotherham and Sheffield will make that argument for their constituencies much better than I can.

It was clear that we had to have an agreement if our industries, many of which are, as the Minister said, modern and efficient, were to have any chance of surviving and covering their costs, even when working efficiently, effectively and competitively. We welcome the agreement on pricing and all that it entails.

The situation on quotas is a little different. Document 7305/81 includes some laudable aims, such as to maintain the unity of the European steel industry and thus, Community solidarity"— there is not much sign of a free market there— to create the right economic climate for the restructuring of this industry … to re-establish a more balanced relationship between supply and demand … to give producers time to return to voluntary arrangements. The Minister of State said that that might be crudely described as a cartel. I shall not bother to argue whether it is crude or sophisticated, but a rose by any other name. It is undoubtedly an agreement to manage the steel market.

I understand that the BSC is satisfied that it will get a fair deal, but that satisfaction is based on quotas that will operate only from the third quarter. The corporation was unhappy about the original proposed quotas, which would have left it in the ridiculous position of perhaps having to import steel to keep some of its downstream activities going. That is a measure of the unacceptability of some aspects of the original proposals.

A more permanent agreement remains to be reached. The Minister of State nods, so our understanding of the situation is correct. If the Government and the BSC are unable to reach such an agreement, the BSC will presumably have to decide whether unilaterally to withdraw and go its own way or to come to an alternative arrangement. It is a serious problem, which remains to be resolved. The time scale for the resolution of that problem is not long, as the Minister is only too well aware. These things take a great deal of time to hammer out, but it will be particularly important for the BSC to resolve that problem.

I come now to the document on State aids. Here m e have the strongest reservations of all about what is being proposed. That is the principal reason for our amendment. As we understand the position, all forms of aid that have been used in the past by successive British Governments to assist the steel industry will be covered by the agreement. I do not think that any aids, including regional policy assistance, will be without this agreement. That in itself is remarkable, in that the British steel industry alone., of all our industries, will be denied regional policy assistance. We find that strange, to say the least, and it will be unacceptable to a future Labour Administration. We shall not want to have that position obtaining for any length of time, if at all.

The draft decision includes an article establishing general rules to apply to all aids, in addition to the rules for each type of aid. They include provisions specifying that, in order to qualify for aids, undertakings or groups of undertakings must be engaged in industrial and, where necessary, financial restructuring, and the restructuring plan must provide for a reduction in capacity.

I come back to the question that was put to the Minister of State. We want to know whether it is likely that before the Commission gives its blessing to the rest of the aid to the BSC further reductions in capacity will be demanded. We already know from leaks from Brussels that there is some difference of opinion between the corporation and the Commission over what overall capacity figure will obtain. Is it 14.4 million tonnes or 13.4 million tonnes? There is a difference of 1 million tonnes, at least according to press reports, and I accept that press reports are not always as accurate as we would like. Certainly there has been a long delay and the importance of that to us cannot be too heavily stressed, so again we need to have that clarified.

Several of my hon. Friends have made the point that aids in other countries will not be covered. The Scrutiny Committee paid some attention to this. The criteria proposed by the Commission for its examination of applications for aids are summarised in the Department of Industry's explanatory memorandum, and it then refers to them, but it does not refer to aids to transport, to energy costs or to coking coals, so we seem to have a position in which it will be possible for countries to take that route of support. I accept that it may be support one stage removed, in that they are supporting the coal industry which then provides coal. It mines coke and gives it to the steel industry, but it is an aid to the industry.

We do not want to have the situation that has been put to the Minister tonight whereby we run down our coal industry by importing coking coal while at the same time we acquiesce in the decision that is allowing one of our European partners to keep its coal industry going, particularly when all this will be assessed against a background of what has taken place in the European steel industries since 1975.

The figures that I have been given and the figures that I obtained from the BSC in respect of what has happened since 1974–75 are as follows: in the Federal Republic of Germany total crude steel capacity has increased by 13 per cent. In France it has decreased by 2.1 per cent. In Italy it has increased by 30.9 per cent. and in Belgium it has increased by 4.9 per cent. In Luxembourg it has decreased by 5.1 per cent. and in the Netherlands it has increased by 42.4 per cent. In that time British Steel's capacity decreased by 15.1 per cent.

Mr. Tebbit

To be fair, will the hon. Gentleman give the United Kingdom figure?

Dr. Cunningham

I assure the Government that I am bending over backwards to be fair to them. If there is concern about the level of aggression, I assure the Government that I can turn up the wick a few notches.

The United Kingdom figure is down by 8.6 per cent. By a significant amount, that is still the largest decline in Europe as a whole. If we are to be parties to any agreement that links aid to industry with restructuring—whether financial or physical restructuring and reorganisation of the industry—we wish to be sure that everyone else will play the game according to the rules. We wish to ensure that we shall not be further disadvantaged, as we have been in the past, when rules are blatantly ignored, subverted and manoeuvred round by some of our competitors.

Mr. Hooley

That is not the whole of the story. Spanish steel capacity has been increasing merrily for several years. Spain is at present outside the EEC, but it is shortly to join it. In addition, the world market includes such countries as Korea and Brazil.

Dr. Cunningham

My hon. Friend is right. If Spain, with its steel capacity, joins the EEC we shall have further problems to contend with. I hope that that will be kept to the fore in any discussions or negotiations on enlarging the Community.

Both sides of the House at least agree that we now have a great amount of modern, up-to-date capacity, which should be able to compete with most—if not all—of the steel industries in Western Europe, if not in the world. It was the intention of both Governments that that should be so. It would be economic, industrial nonsense for us to accept further steel closures in the face of that and in the face of what we know about existing capacity in some of our so-called partner countries. It is difficult to accept that some of them are partners when one considers what has been going on throughout the recent history of the steel industry.

It is unacceptable and unthinkable that we should have further steel closures in the short or medium term. The Minister may say that none of us can see far ahead. However, the agreement on aids is to cover the period from now until 1985. On that basis, our amendment is reasonable, because we are talking about steel-making capacity.

I want to refer briefly to the continuing need for us to be able to intervene in our industries, if the Government think fit. There has been some press comment on the Warner report on the conditions in the special steels industry. We know that the industry is in a critical state because of imports, excess capacity and, in some cases, failure to adopt new processes. I understand that that report calls for action in a number of areas by Her Majesty's Government, among others, and the industry. It recommends that not only should the Government embark on the creation of a working party to work out the future of the industry but that they should give financial support for a number of items, including the reorganisation of the industry, support for research and development and support for the production of high-speed steel from powder metallurgy techniques. Shall we be given an early response to that series of recommendations? Is not that called-for report likely to be overtaken by the EEC agreement just as we are apparently in danger of seeing some part, if not all, of the MacGregor plan being overtaken by the discussions in the EEC?

Those are crucial questions and I hope that the Under-Secretary will be able to suggest when we shall have a final decision on MacGregor and a Government response to what is contained in the report of Sir Frederick Warner.

We have seen a massive, indeed catastrophic, run-down of our industry. The present difficult circumstances are being aggravated by lack of demand, as the Minister of State said. It is likely that if the Government's policies continue demand will further decline. The Government could take a number of measures that would aid the steel industry, such as going ahead with the gas-gathering pipeline in the North Sea and extending the rail electrification programme or doing something about the catastrophic slump in the building and construction industries. Even steel bath manufacturers in Britain have been moved to write to the Prime Minister to protest about massive imports of steel baths. That surely is indicative of how far down we have gone in steel utilisation in the country that was the birthplace of steel manufacture.

Government policy has contributed in a number of ways to an ever slimmer steel industry, developing a sort of industrial anorexia nervosa—ever slimmer, slimmer for its own sake, slimmer to the point where the industry will become so slim that, like the victims of that disease, it will not be able to recover.

That is why the amendment should be accepted by the Government and should be a condition of acceptance of the EEC documents.

12.5 am

Mr. Teddy Taylor (Southend, East)

There are a few reasons why we should be less enthusiastic than the Opposition about the regulations. There is a great deal of attraction in the proposals for anyone who supports a Socialist view. The crucial aspect which should worry us is that the proposals have as much relationship to free enterprise and market forces as a collective farm. By accepting the measures, or even noting them with approval, we accept, not temporarily but as part of a long-term plan initially until 1985, a system based on organising and fixing production prices and costs, which will be supervised by bureaucratic control. The Minister envisaged that EEC police would go round the countries to ensure that the rules are kept.

Can the Minister and others who believe in Conservatism and free enterprise honestly regard the proposal as acceptable? Surely it is based on a Socialism even stronger than that set out in George Brown's national plan. I am happy that the Secretary of State for Industry has not introduced the proposals, because we are being asked to organise our steel industry and Europe's steel on the basis of dull and unresponsive Socialism. It is a Socialist plan for organised and controlled prices.

Mr. John H. Osborn (Sheffield, Hallam)

Does a free-for-all in a recession when there is a buyer's market justify making the mistake that we made in the 1930s, which also nearly killed Sheffield's special steel industry?

Mr. Taylor

My hon. Friend thinks that we are bottoming out and that things will get better. It is a mistake to reconcile ourselves to such a plan, not only until 1985 but beyond. My hon. Friend must recognise that there is more than one way of taking special measures on a national basis to protect an industry. I accept that in a recession and crisis the nation must take action. But it is difficult to take action on a Euroscale with the knowledge that every time that we have done anything like it we have been proved to be mugs. We have come off worst, others have broken the rules and we have lost more jobs. It is right that a nation should respond to a crisis with crisis measures, but the proposal is more permanent. It will do great and continuing damage, not only to steel but to the British economy as a whole.

Is it right to agree to proposals designed to get rid of artificial aids across Europe when we have the special problem of coal which is an important, substantial cost to the United Kingdom? I accept that it might be possible to get rid of the artificial subsidisation of coal if there are enough Euro police and a change in the attitude of Continentals, particularly the French and the Italians.

However, that does not deal with the problem of the basic cost for each country. The Government have decided, understandably, that we should continue to pay British miners to go down pits which are totally uneconomic, to produce coal which nobody wants, at-prices which nobody can afford. As a result, our coal and coke prices are Likely to be in excess of prices across the water on the Continent. If I am right and the basic cost of producing coking coal in the United Kingdom is greater than in Germany, France and Italy—[Hon. Members: "No."] Hon. Members might say "No", but there is evidence of that in the straight cost of production.

Mr. Hardy

A great deal of coking coal is produced in my constituency in the South Yorkshire area of the National Coal Board. The current cost of producing the coal is £37 a tonne. The cost of producing the coal from Ruhr Kohle AG mines in West Germany, the only other significant producer of coking coal in Europe, is about £47 a tonne. That is not the latest figure whereas the figure I have given for South Yorkshire is as recent as early this week. The hon. Gentleman is miles from reality.

Mr. Taylor

I accept the figures that the hon. Gentleman has mentioned. I have heard them myself from the National Coal Board and my friends in British Steel. Within the rules, regulations and restrictions applied, I suggest that the price to be paid by British Steel for its coal and coking coal over the next five years will exceed the price being paid by European steel producers. This should cause hon. Members serious concern when one considers that our steel will become less competitive.

The Government should also bear in mind that this country, once again, as so often in the past, could turn out to be the mugs—

Sir Anthony Meyer

I am puzzled by my hon. Friend's remarks. At one stage, he says that it is monstrous that there should be regulations and what amounts to European Socialism. The next moment, he argues that if there are to be rules, we shall be proved to be the mugs who obey them. Does my hon. Friend want rules that work properly and ensure an orderly treatment of the European coal and steel industry? Or does he want a free-for-all? He cannot have it both ways.

Mr. Taylor

I happen not to like Socialism. I do not think that it is good for growth, for workers or for industry. If, however, one has to adopt Socialist plans, I would prefer to see everyone taking part, obeying the same rules and following the same practices. There is every indication already that Britain might be getting an unfair deal. This will appear in today's newspapers. The European Commission yesterday decided to withhold approval of £560 million of the £700 million rescue fund for which the Government sought approval because it remains uncertain about some of the central elements in the BSC survival plan.

The Commission's officials are worried that British Steel's liquid steel-making capacity, although substantially slimmed to 14.4 million tonnes, may still be too large to give reasonable market expectations, taking into account the over-capacity in Europe. I understand that our production capacity has, since 1979, been reduced from 21.5 million tonnes. to 14.4 million tonnes. That is a substantial reduction designed to make our industry fitter, leaner and more competitive. I am worried that the Commission, by withholding the £560 million, may consider that the 14.4 million tonnes should be further reduced. I wonder what measures the Government can take to ensure that the same level of reduction will be seen in the productive capacity of other European nations. How urgent is the need for the £560 million? This will have a considerable bearing on the future of the industry.

Mr. Tebbit

The further £190 million tranche which has been cleared by the European Commission will last the corporation well into October and towards the latter part of the year. My hon. Friend should take into account the fact that the Commission may have noted Mr. MacGregor's description of the survival plan as being very optimistic and may, therefore, be examining it quite closely. My hon. Friend had the advantage of a copy of tomorrow morning's Financial Times, which told him not only about the £190 million clearance but that the whole of the British Leyland financing had been cleared. That demonstrates that the Commission takes a sensible view of sensible plans.

Mr. Taylor

I am glad to note that the Secretary of State is delighted at the extra cash that is coming to British Leyland. I was sorry that my right hon. Friend was not in the Chamber when I said that the plan has as much relevance to free enterprise and market forces as a collective farm. I know that that is something about which my right hon. Friend will not be happy.

My hon. Friend has said that the Commission has given us £190 million, which will cover aid until October. We are going into recess on Friday and we shall return to this place on 19 October. It is important that my hon. Friend tells the House, bearing in mind that the Commission's money will last only until we return to the House, when he thinks that extra cash will be needed, and, more importantly, whether there will be pressure in the interim, as was indicated in the reports from Brussels, further to reduce the £14.4 million tonnes.

As there have been no comparable reductions in European capacity, it would help if some indications were given of the level at which the Government think that they have a duty to preserve a steel industry against the background of the limited market forces that will operate until 1985. I hope that there is some level at which the Government think that it is worth while protecting or defending the steel industry.

The Government were elected to try to inject more private enterprise into British industry, to give more scope for entrepreneurs, to give more scope to those who wanted to reduce costs and to improve production by introducing free enterprise. There have been some recent splendid endeavours in that direction. There has been an injection of private enterprise into British Aerospace. We are told that that will be splendid. There has been some slippage in a different relationship with ICL and other organisations. It will be difficult for free enterprise to get going so long as the basic industries that make up so much of the costs of the free enterprise system are controlled by the State. Indeed, it appears that they are to be more permanently and rigidly controlled by the State under this and other plans.

When will it be possible for basic industries such as steel and car manufacture to have the injection of a little more competition? Are we to have only a little more free enterprise and little more competition on the peripheries of the economy? By setting up this appalling structure of controlled production, bureaucratic inspection, controlled prices, controlled production levels and controlled costs we are establishing something that seems as if it will be pretty permanent. It seems that we shall be organising our basic industries like collective farms for a long time to come.

12.18 am

Mr. Peter Hardy (Rother Valley)

The speech of the hon. Member for Southend, East (Mr. Taylor) justified the Scrutiny Committee's decision that there would be a substantial debate. I did not agree with a great deal of what the hon. Gentleman said, but he advanced a legitimate argument. His description of what has happened to British industry as "slippage" was hardly appropriate. I traveled between Sheffield and Rotherham recently and "slippage" is hardly the word to describe the wasteland that now exists. There is notice board after notice board offering substantial areas of industrial hereditaments for someone to purchase. There is little sign that anyone will purchase them. Such is the effect on what was an important wealth-creating area not so long ago.

Mr. Teddy Taylor

When I talked about slippage, it was in connection with the advance of free enterprise. I said that we had had a step forward with British Aerospace and a slight slippage in the advance of free enterprise in the case of ICL.

Mr. Hardy

There has been much slippage in both public and private enterprise in many parts of Britain. However, I shall not pursue the matter, because I want to refer to what the Minister said.

In his quiet and restrained way, the Minister spoke with a real affection for or approval of the elimination of capacity. I believe that the level of capacity has already fallen very low, and it should not fall any further. Over the past few years, Britain has become the dumping ground of everyone else's steel industry. I can quote case after case in South Yorkshire where other people's steel has been sold at prices less than the cost of production in this country and in theirs. The Labour Government took a long time to put quotas on Spanish steel. This Government appear to be reluctant to take any protective action. I know that steel produced in the Community, Austria, Spain, Sweden and many other countries as well as Brazil, Korea and Japan has been sold in Britian at less than it costs them to produce. Our steel industry has had to sit back and take it on the chin because of the philosophical embrace of the free market by this Government, who maintain the most open market in the world. It is no good the Minister shaking his head.

The Minister should be much more protective. I am reluctant to quote statistics, because it is hardly appropriate to do so at this time of night, but the Minister used the word "guilt" about excess capacity. I suggest that the House should be considering guilt of a deeper and more historic nature. The Minister should tell the Commission that it should be looking not at the last few months of steel demand but at the whole 30 years of post-war industrial development—not half that number of months. It should consider the way in which the steel industry in Britain and other countries has developed.

In 1950, the United Kingdom had 16½ million tonnes of steel capacity—that is much more than if the Community had had its way. West Germany had 12.1 million tonnes and Japan 4.8 million tonnes. We had one-twelfth of world steel tonnage.

By 1960, we had increased our capacity to 24.6 million tonnes. West Germany had increased its capacity to near our level, 22.1 million tonnes. The Japanese had passed us, to 34.1 million tonnes. At that point, Japan had increased its capacity to one-tenth of the world's total steel production. We had slipped to one-fourteenth. West Germany had increased its production by the amount that was required to increase its share of the world market over that decade.

In 1970, we had gone up to 28.3 million tonnes and West Germany to 45 million tonnes. Japan's record was unique and astonishing—it had increased to 93 million tonnes, one-eighth of the world total of 596 million tonnes.

By the end of the 1970s, the United Kingdom had slipped back to 20.3 million tonnes. West Germany had maintained 42 million tonnes, and the Japanese were 112 million tonnes. So by 1978–79 Japan had one-sixth of the total world steel production, and we had dropped to one-eighteenth. Germany was maintaining the same share that it had had throughout the previous 25 years. Now we are slipping back to occupy a position in which we shall produce less than 2 per cent. of the world's steel—this country, which, in large measure, is the home of steel technology.

Mr. John H. Osborn

The hon. Gentleman should bear in mind that during that time the dagger of nationalisation was hanging over the steel industry. It was nationalised in 1967. The nationalised steel industry had to wait three years before funds came in. By then, we had missed the bus. I accept what the hon. Gentleman is saying, but he should bear in mind that he has some responsibility for the tragedy that hit the British steel industry.

Mr. Hardy

I regard myself as bearing the same responsibility as someone who was closely connected with the private sector of British steel and failed to invest, regardless of the party political excuses that were later invented. I do not want to involve myself, at this time of night, in a party political argument. I was talking about guilt, no matter what its origin. There is a guilt that is more serious and deep-rooted than that to which the Minister referred. The hon. Member for Sheffield, Hallam (Mr. Osborn) should not adopt such a superficial view. I was about to explain why our share in steel had fallen and why, if Government policies are to have any effect, there will have to be a rapid change.

One reason is what happened in the car industry. In 1950 Britain produced 500,000 motor cars a year. The Japanese produced 1,594. Germany produced less than half the number produced by Britain. By 1965 Japan was producing 696,000 cars and Germany had increased its production to the point where it was producing 1 million more cars per year than Britain. By 1978 we were producing 500,000 cars less than we were in 1965, while the Germans were producing 1½ million more cars per year, and the Japanese had increased their production. in less than 13 years, by 5 million cars per year. That is an awful lot of steel.

My point is that if the Government are using public money to back British Leyland, if they are encouraging Sir Michael Edwardes or anyone else involved to ensure that that important sector of British industry survives, there will have to be a substantial steel industry to provide the steel for the cars. The steelworks in the constituency of my hon. Friend the Member for Rotherham (Mr. Crowther) have some work because of the success of the Metro. If British Leyland or other industrial enterprises in Britain survive, there will be other work for the steelworks.

The fact remains that we failed to invest, whatever the cause. Whatever the hon. Member for Hallam may say, I remember that throughout the 1950s and 1960s public and private sector investment in the steel industry was about $100 million per year. In Japan it was five times that figure and in Germany four or five times that figure. I recall that during my first Parliament in the early 1970s there was a debate about whether we should increase our investment in steel. The hon. Member for Flint, West (Sir A. Meyer) may recall that. We increased our investment to $800 million or $900 million a year, of which some Conservative Members were critical. Plenty of people in Britain said that that increase was regrettable and wrong. But, while they were criticising that level of investment, the Japanese were not making a fuss. They continued to invest at five times our level . They recognised that if they were to have a major level of industrial activity they would have to have a substantial steel industry.

The Government should make it absolutely clear that there is a point beyond which the British steel industry will not be allowed to decline. There is a point beyond which we should not allow industrial dereliction to develop in Britain. We invested a fairly substantial amount for a short period in the 1970s. If we had been investing at that rate in the 1950s and 1960s, South Yorkshire would not have become a wasteland.

The Minister should put to the Commission that Britain must remain an industrial country. We cannot have a situation in which our industrial base is destroyed. I am not suggesting that there is any ground for us urgently to believe that there can be a major bulk steel contribution from the British industry. I know that the Minister does not like it, but I hope that he will listen to my point. I am not suggesting that anyone in the House can believe that Britain can make a substantial contribution to world bulk steel making, but our special steels industry can compete with anything in the world.

The Minister did not seem to believe me a few weeks ago when I told him that in the works in my constituency we were accustomed to breaking world records before the present recession. We are capable tomorrow of breaking world records again. The kit in the Rotherham area is competitive with anything in the world. If the Minister has no knowledge of that, I suggest that he sees it for himself, because the Secretary of State is aware of that fact. That capacity, which in large measure was a result of the investment of the 1970s, should be allowed to succeed and to operate.

The Minister should bear in mind that it is only relatively recently that the special steels industry of the South Yorkshire area has become unprofitable. For the greater part of the post-war period, that has been a money spinner. It could rapidly become a money spinner again, well in advance of the date when the Minister expects the British Steel Corporation to be out of the wood.

Surely this is a reasonable request for any hon. Member to make. All I am asking is that the Minister does his best to ensure that that which can win in British industry is allowed to be victorious. Rather than that, when I put that point to him a few weeks ago, the Minister suggested that the workers in that industry needed to have their present experience to teach them a lesson. If the Minister looks back to Question Time a few weeks ago, he will see that that is a justified impression. The Minister would not accept then that the workers in our area in Rotherham and Rother Valley accepted the need for change and that thousands of them voluntarily went down the road so that the industry should succeed. It now has a character of potential enormous success. It cannot be tolerated that European commissioners will expect the hon. Gentleman and Mr. MacGregor to engage in further cutbacks of capacity when we will be left with half the capacity of 10 years ago. Germany, France, the Netherlands, Italy and Belgium will be left in greater strength than 10 years ago.

Sir Anthony Meyer

rose—

Mr. Hardy

I shall give way in a moment.

It is all very well for the Minister to quote the number of European units of account which are available for redeployment or re-adaptation. The fact is that in South Yorkshire today there are about 80,000 people on the dole. As I said at Question Time, there are 77 jobs in the careers offices in the whole county. That situation justifies my hon. Friends and me from the South Yorkshire area telling the Government that enough is enough. Industrial dereliction has gone far enough. That plant and equipment, whether it be in public or private hands, which could be profitable, and rapidly extremely successful, must be allowed to develop that success.

It is all very well the Minister saying that that applies to Italy, but he knows—if he does not, he should—that Italy has been allowed a sufficient number of exemptions over a sufficiently long time to have met its needs.

Mr. Crowther

My hon. Friend may be interested to know that in connection with Italy, when the Select Committee on Industry and Trade met the Commission in Brussels recently, we were specifically told by Commissioner Davignon that Italy was excluded from the capacity reduction provisions.

Mr. Hardy

That confirms my view. My hon. Friend makes a serious point. The Minister may have unwittingly misled the House, but I believe that the House has been misled. Although the hour is late and although hon. Members want to get away for their Summer Recess, I believe that the Minister must make the Italian position absolutely clear.

The hon. Gentleman cannot accept a situation in which Mr. Davignon can tell hon. Members that Italy has been given concessions, whereas he has told the House that it has not. Before the debate is over, or before the House rises for the recess, I hope that we shall be given absolutely accurate information, because this is a serious matter. If exemptions can be given to Italy, which has lower levels of unemployment than we are currently experiencing in South Yorkshire, the Minister has a great deal of explaining to do.

Mr. Tebbit

Before the hon. Gentleman gets unduly excited and does himself an injury so shortly before the recess, I must point out that Vice-President Davignon, and not I, is responsible for what he says. It is perfectly clear—the hon. Gentleman has to take the trouble to read the documents—that no concession in these arrangements excludes Italy from their provisions.

Mr. Hardy

The Minister may think that that is a satisfactory response, but, whether it is in the documents or not, the fact remains that the Italians have the impression that these arrangements do not apply to them, and Count Davignon has justified them having that impression. It is scarcely satisfactory when seemingly the Minister avidly embraces the idea that British steel capacity must be cut back even further.

It is no good the Minister looking pained. This is an important matter for thousands of people in the British steel industry. The fact is that other people in Europe are fully convinced that Britain obeys the rules whereas no one else does. But in obeying those rules, the Minister ensures the destruction of thousands of job opportunities in the Northern and industrial areas, thus bringing hopelessness to many young people and steel communities.

The hon. Gentleman has a responsibility to this country to ensure that the Commissioners are fully aware that we are not prepared to see Britain produce less than 1½ per cent. of the world's steel. That point should command the Minister's attention. It is a matter of enormous importance. Although it is a late hour, I trust that before he goes to bed he will think carefully about what he has said so far.

12.37 am

Mr. Michael Brown (Brigg and Scunthorpe)

I shall not follow the remarks of the hon. Member for Rother Valley (Mr. Hardy) too closely. He has legitimately used this opportunity to have a more general debate on steel matters. I believe that this is an opportunity for hon. Members specifically to concentrate on the implications of these documents. I shall therefore confine my remarks to the impact of the agreement that has been reached in Brussels and hope that there will be another opportunity later in the year to consider the general state of the BSC's progress.

I intend to be a little hard on the European Commission, but I preface my remarks by offering my congratulations to my hon. Friend the Minister of State on the way in which he has represented the British steel industry's case in Europe. I do not envy him his job. It is the one job that I should not wish to have at the present time. It involves the frustrations of contending with a European Commission and a number of other countries that negotiate in dubious ways.

My hon. Friend has managed to bring back a deal which, in the circumstances, no Labour Minister of State could possibly have brought back. The House owes a debt of gratitude to my hon. Friend for what he has done on behalf of the United Kingdom. But—there is always a "but"—next time he is with the Commission he should remember one or two points made by my hon. Friend the Member for Southend, East (Mr. Taylor). There is now in Europe a cartel, and we are part of it. As there is not to be competition between elements of it—by definition, a cartel means no competition—it is in the interests of the cartel that the price of its products should be as high as possible.

I make no criticism of my hon. Friend the Minister or of the British Steel Corporation for seeking to achieve that. I represent a constituency with a vested interest in the cartel's success and in its achieving high prices. Therefore, so long as the cartel exists, I understand and support what my hon. Friend is trying to do. He has the corporation's backing.

A cartel has rules, and it is against the interests of any cartel for one part of it to break the rules. We have an apparent assurance, to judge from the way in which the documents are phrased, that the agreement will apply to all countries in the Community.

Each country is to be responsible for the policing of the observance of the rules set out in the quotas. That is the cause of slight worry. There is no doubt that the United Kingdom Government, because they believe in honouring obligations, will police the rules effectively and efficiently and in the spirit in which they were adopted in Brussels. But I wonder whether the policing will be as strong in some of the other countries. Will it be as strong in Italy as in this country?

There is over-capacity in the whole area covered by the cartel. The proposals made by Mr. MacGregor last year are being successfully implemented. With those proposals, the United Kingdom has one of the most efficient steel industries in the world. Mr. MacGregor's plan needs to be backed more than it has been so far by the work force. It has given considerable support to the plan, in spite of its early misgivings, but I have the impression from the corporation that the work force has yet to appreciate the full seriousness of the position, though it is beginning to do so.

In spite of all that, there is an efficient BSC on the way, given a fair wind. My hon. Friend said that the chairman was optimistic about the prospects. The plan is optimistic, but there are risks that it may not succeed. We must make sure that we in the United Kingdom do nothing to frustrate its success. That means that the work force must appreciate its obligations.

It would be a travesty of justice if this country, having put its house in order, having produced a steel industry with the prospect of profitability, fell at the final fence because of external pressures from the Community. My fear is that, in spite of the agreements negotiated so successfully by my hon. Friend, there will be a lack of spirit in other countries over implementing the proposals. There is still over-capacity in the whole European steel industry. We have dealt with our over-capacity. Other countries must deal with theirs. The output from that over-capacity must not be dumped in this country under the guise of the Common Market rules that enable other States to get rid of their surpluses.

It must be very frustrating for my hon. Friend the Minister to hear us all getting at him. I feel sure that all hon. Members will recognise that, with his personality and style, my hon. Friend will be in the vanguard of those of us who have misgivings about the way the Community operates. Nevertheless, I hope that he will take on board the genuine misgivings of all hon. Members whose constituencies contain major BSC enterprises. Those hon. Members have seen the emergence of those slimmer and leaner BSC enterprises that have had to shed so much labour and have caused so much distress to their towns. In view of that, it would be a travesty if they had to tolerate the worst consequences of the over-capacity of other States.

I urge my hon. Friend most strongly to bring to bear in the counsels of Europe the great strength of feeling that exists in the British steel industry at the failure of other countries to do what this country has done. I hope that he will reflect there, too, the hope of the BSC that other countries will be encouraged—by the threat of a price war, if the cartel were to break down—to follow our example. I should not like a price war. It would be harmful to the BSC and to our steel industry, as it would be to the European steel industry. That is the sanction that my hon. Friend possesses, however. We all have some aces in our packs. That is the threat that my hon. Friend can hang over his colleagues in Europe, although I do not like the word "colleagues". Some of us would prefer to describe them as enemies.

Sir Anthony Meyer

I am following my hon. Friend's argument with great interest. I am not sure how strong a position the BSC would be in, however, to wage a price war when it is still receiving about £600 million a year in taxpayers' subsidy to avoid bankruptcy.

Mr. Brown

I should not like a price war. It would not do the steel industry of this country or that of Europe generally any good. But I am not prepared, as a steel industry constituency representative, to stand by and see our industry being made ever more efficient compared with the industries of Japan and West Germany and yet still failing at the final fence because the products of other nations' over-capacity find their way to our market.

I recognise that we are in a weak position, and therefore the card of a price war should be used only as a threat. Other countries are in the same position as ourselves, however. We must speak with some strength in the counsels of Europe. I fully recognise the implicit suggestion of my hon. Friend the Member for Flint, West (Sir A. Meyer) that we do not have much power in the European Commission and that we are in a weak bargaining position, but that is because of the structure of the European Community, of which my hon. Friend is such a sincere and devoted supporter. We must recognise that, however weak our bargaining position, we could always threaten to create havoc in that cartel if it were to be threatened by others in the European Community.

I congratulate my hon. Friend the Minister on what he has achieved in the agreement. It gives the BSC a further breathing space for a medium period. But I hope that he will use all his energies at the negotiating table in Europe to urge that the rest of Europe deals with its over-capacity as we have dealt with ours.

12.50 am

Mr. Stan Crowther (Rotherham)

The hon. Member for Brigg and Scunthorpe (Mr. Brown) has shown a touching faith in the ability of the Minister of State 1:o defend British interests. I am afraid that I do not share the confidence that he has exhibited at considerable length today.

The Select Committee on Trade and Industry was in Brussels at the beginning of this month for intensive discussions with Commissioners Davignon and Andriessen and other senior people from the Commission. I was frankly dismayed to learn how the Commission intended to interpret the document on State aids. We heard about things that were not written into the document and I was left feeling extremely pessimistic about the future of the British steel industry if the Commission was able to do what it proposed. Before this debate, I was not sure whether the Minister of State realised just what he had voted for on 24 June. Having heard him today, however, I am sure that he did. He should be ashamed.

The overriding impression that I gained was that the Commission was obsessed with the notion of cutting capacity. That was its only concern. Efficiency, modernisation and competitiveness with the rest of the world were no longer of any importance. All that it wanted to do was to cut the capacity of the steel industry in Europe.

It also became apparent during the discussions that the Commission had done no real homework to establish what the capacity should be. It had not the faintest idea what the demand for European steel would be in 1985. What is more, it did not even know the true capacity of the industry today.

Anybody who intends to carry out a capacity cutting exercise in a sensible and rational way must know, first, how much there is now and, secondly, how much will be needed in the future. The Commission knows neither. Indeed, it was noticeable that the Minister of State mentioned no capacity figures in his speech. I do not believe that he knows, either, what the present capacity of the European steel industry is or what the demand will be in 1985. It makes no sense to go thrashing around closing down capacity all over the place without having any kind of target in mind.

The first manifestation of this blind and unreasoning commitment to cutting capacity came when Commissioner Davignon confirmed press reports about the Commission not having decided whether to approve the British Government's proposals to put into the British Steel Corporation the £730 million to which the hon. Member for Southend, East (Mr. Taylor) referred. I thought that Commissioner Davignon referred to about £200 million, but a much larger figure was mentioned today. Whichever is the correct figure, however, it is a disgraceful spectacle for unelected and unaccountable people to sit in Brussels and decide whether to allow the British Government to spend British taxpayers' money on the British steel industry. Yet that is the position in which we now find ourselves. The Commission made it clear that it was not satisfied that the present plans for the BSC would result in a sufficient drop in capacity to allow the British Government to put in that amount of British taxpayers' money.

When I pointed out that the BSC board, the Department of Industry and the Select Committee on Trade and Industry had all, after careful examination, decided that the Government's financial restructuring proposals were vital to the survival of the BSC, the reply was simply that that was not the Commission's concern. It is not interested in the British industry. It is looking only at the European picture. It became crystal clear at that point that if Mr. MacGregor had proposed to close every BSC plant in Britain the Commission would jump for joy.

We were told of specific ways in which the Commission would use its financial power to bring about capacity reductions. The readaptation benefits scheme has been used in the past to top up redundancy pay and to finance early retirement and retraining schemes, but it was made clear that under the new regime such money would be available only when redundancies were associated with reducing capacity.

Not long ago there was commissioned at the Rotherham works a new continuous billet caster. It was a splendid technological advance, but unfortunately it resulted in about 500 redundancies. I understand that the BSC plans to install continuous casting at Stocksbridge and Scunthorpe. That will inevitably mean redundancies, but, because it will not mean reducing capacity, men who lose their jobs will not benefit from Treaty of Paris money.

That is a good example of how efficiency and modernisation are being penalised and discouraged. If a clapped-out plant is closed, the money will be available.

Steel will be the only industry excluded from benefiting under the normal criteria of the regional policy of any member State. The Commissioner justified that by saying that a regional grant for a development in an assisted area might increase capacity and that, even if it did not, it would give an enterprise in an assisted area an advantage over an enterprise in a non-assisted area. But that is precisely what regional policy is about.

Dr. John Cunningham

It could also increase efficiency.

Mr. Crowther

Indeed it could. This is not merely an attack on the steel industry but an attack on the whole concept of regional policy.

Perhaps the British steel industry could learn to live with that if the phasing out of State aids were being done even-handedly. The Select Committee on Industry and Trade drew attention to that matter in its report on the BSC corporate plan. We said of the phasing out of State aids: This policy if carried through completely would be advantageous to the United Kingdom steel industry and probably to the advantage of the industries of the other Community members also. But the great danger is that, while direct subsidies may be abolished, indirect subsidies (eg cheap coking coal, transport) may be allowed to continue. We strongly recommend that in any negotiations for a new regime HMG, mindful of this danger, should press for the total elimination of all subsidies, indirect as well as direct. That has been disregarded by the Minister of State and, presumably, by his colleagues in the Council of Ministers. We were told in Brussels that indirect subsidies would not be phased out. The danger to which the Committee drew attention is upon us. It would be wrong to suggest that the indirect subsidies are anything but significant. The British Iron and Steel Consumers Council quoted in evidence to the Select Committee the Commission's estimate that the value of coking coal subsidies to the West German steel industry in 1979 was £386 million and that the figure for the United Kingdom was £8 million.

Another memorandum of evidence that the Committee received from an authoritative body suggested that the value to the German steel industry of State support to the railways in 1978 was £360 million—equal to £9 per tonne of crude steel. The corresponding figures for Belgium were £50 million, equal to £4 per tonne, and for France £70 million, equal to £3 per tonne. There is no corresponding figure for the United Kingdom, because there is no subsidy for rail freight transport. The British Iron and Steel Consumers Council evidence concluded: Whether. one looks at rail freight, coking coal, electricity, gas or oil, it appears that United Kingdom steel producers have been at a cost competitive disadvantage against Continental producers as a result of differing Government policies. Yet the Commissioner has made it clear that these indirect subsidies are not to be phased out, so the result of all this must be that the British steel industry, both public and private, will be placed at a serious disadvantage in relation to the competitors in the other parts of Europe under arrangements to which our Minister has agreed.

I have one other short quotation to make from the report of the Select Committee on Industry and Trade. We said: Whatever happens within the Community, Her Majesty's Government and the Community must ensure that the steel industry in Europe is not at a disadvantage in any markets because subsidies appear in other countries outside the Community. I should like to know what the Minister has done about that, because the European steel industries are in competition throughout the world with Japan, Korea, Brazil and the United States and many other steel producing countries, some of which will still be receiving subsidies after 1985.

The question of energy costs is extremely important. The British steel industry is already at a severe disadvantage because our Government charge a high tax on fuel oil injected into the blast furnaces—twice as high as the next highest in Europe. Yet in Holland and Germany, although the tax in any case is very much lower, it is rebated in the case of blast furnaces because it is regarded as a chemical feedstock.

The NEDC task force report on energy costs earlier this year—I am sure that the Minister is familiar with it—shows that the energy-intensive industries in Britain, of which steel is one, are operating at a considerable disadvantage. But the Commissioner made it clear to us in Brussels that any steps that may be taken to allow the energy-intensive industries to receive their energy at prices lower than those charged to the generality of industry would not be permitted by the Commission in the case of the steel industry. In the case of other industries that would be all right, but not for steel.

It is patently obvious from all these things that the measures to which the Minister of State agreed at the Brussels meeting on 24 June can only have a disastrous effect on the British steel industry, both public and private. It is now clear that the Minister understood what he was voting for, and I can only say that he has grossly betrayed a vital British industry.

1.3 am

Sir Anthony Meyer (Flint, West)

The debate has been full of fascinating cross-currents. I disagreed with almost everything that the hon. Member for Rotherham (Mr. Crowther) said, but he was right to draw attention to the fact that we are not living in an enclosed vessel and that the European steel industry has to face intense competition in third markets. It will be of no avail to protect the European steel industry if it finds itself priced out of the markets in the rest of the world. It was of particular interest to listen to my hon. Friend the Member for Southend, East (Mr. Taylor) arguing in favour of a free-for-all. I wonder whether he would extend this principle also to the fishing industry.

In this matter I find myself in full support of the trade unions and in full support of what I thought was a very reasonable and balanced speech by the hon. Member for Whitehaven (Dr. Cunningham). In particular, I found myself in support of the general secretary of the Iron and Steel Trades Confederation, Mr. Bill Sirs, who wrote to the Prime Minister saying that the adoption of mandatory production quotas would help European steel industries to survive.

I am also aware that it will have a greater effect on helping the British steel industry in the immediate future. That is why we would request that the Government give every ounce of support to this measure.

The same line was taken by Mr. Joe Gormley, on behalf of the National Union of Mineworkers. He wrote to the Prime Minister and said: We fully believe that the Davignon proposals will assist the British steel industry and consequently have a beneficial effect to related industries. I believe it crucial that Her Majesty's Government should fully support the proposals and would request that you vote accordingly at the next meeting of the Council of Ministers. Like hon. Members, Mr. Gormley regards the maintenance of a British coal industry as a primary British interest. Although we would all like our coal to be produced at prices that are competitive with the rest of the world, we must accept that we face particular difficulties. It is common ground between the parties that the British coal industry requires a measure of protection. That measure of protection can be most effectively applied on a European scale. That is why I have no hesitation in supporting these measures, which are the logical conclusion of the Davignon proposals. They have not been as fully effective as we should have liked them to be, but they are a step in the right direction. Those of my hon. Friends who constantly seek to belittle and ridicule them might pause to consider what they want. Do they want measures that are flouted by every nation that cares to disregard them in pursuit of a temporary national advantage, or measures that are effectively policed? That contradiction lies at the core of every argument that those hon. Friends put forward in such a debate.

I should like to emphasise the point that I made briefly in an earlier intervention. The steel stockholders are angry about the figure of 12,000 tonnes, which is the cut-off point for requiring the publication of pricing. They consider that proposal to be little short of disastrous. I am not sure that they have always expressed themselves well. The letter that they wrote stating their case seemed to be badly drafted. However, there is no mistaking the fact that they feel great anxiety and anger. I beg my right hon. Friend the Secretary of State to pay that close attention.

This debate has been remarkable for the dog that did not bark in the night. We have heard no criticism from the Opposition of Mr. Ian MacGregor. I recollect that Mr. MacGregor's appointment was ridiculed by the Labour Party. It wanted to know what a geriatric Yank was doing, coming to Britain at enormous expense to complete the liquidation of the BSC. That is not the reaction found among those employed in the BSC.

Dr. John Cunningham

We have not discussed Mr. MacGregor because the debate is about EEC steel documents. Nevertheless, the hon. Gentleman's remarks are not valid. We attacked the manner and nature of the appointment, not the man or his record. That is the fact of the matter.

Sir Anthony Meyer

The manner of Mr. MacGregor's appointment may have been necessary in order to get such an outstanding man to run the BSC. If Labour Members have any doubts about the matter, they need only talk to any of the BSC's employees.

Since Mr. MacGregor took over, the transformation in morale and outlook has been little short of staggering. The only plant that I have direct experience of is Llanwern, where the transformation has been unbelievable. It has been transformed from a plant that was a byword for bad labour relations, a constant inability to meet targets and general bloody-mindedness into one of the world's most efficient steel producers. That is almost entirely due to the transformation in climate brought about by Mr. MacGregor. He has done that in an astonishingly brief space of time. Since nothing had so far been said about that, I felt it right to make the point.

1.10 am

Mr. Frank Hooley (Sheffield, Heeley)

The speeches from the Government Benches, although by the nature of the debate few, have been interesting. Two hon. Gentlemen are obviously acutely unhappy about the documents and about the possible consequences that may flow from them.

The hon. Member for Flint, West (Sir A. Meyer) is clearly so fanatical about Europe that anything that emanates from Brussels is automatically regarded as holy writ. Therefore, I am not surprised at his comments.

We are discussing a matter of fundamental importance to the British steel industry—that is, its future capacity. That is the key issue. The British Steel Corporation is an enterprise which in its most recent year, despite the denigration, attacks and criticism, has produced real wealth to the tune of £3,000 million-worth of products sold not only in the home market but abroad, enhancing the real wealth of the country and under economic conditions as appalling as one could imagine.

The steel industry is struggling desperately to claw its way out of the trough of 1980 and is having success in some directions. Its production in June was 35 per cent. up on the average production for the second half of 1980. That is still only three-qaurters of the production for 1979, but it is moving gradually in the right direction.

We must recognise that over the past few years the industry, with its skilled manpower and management and with the help of the taxpayer, has built up enormously valuable modern assets. It has tremendous productive capacity now and is beginning to exploit that, despite all the appalling difficulties of the Government's economic mismanagement and the difficulties in home and overseas markets. One could mention one or two plants within British Steel. There is a stainless plant in Sheffield. I quote a recent report on it which says: Since Christmas the department has shattered eight production records—and according to the section manager … they could better this in the very near future. We broke the record for the 13-shift production three times in one month, the record for 15 shifts four times in three months, and the record for 17 shifts once during the six months … Currently we are looking to topple the 4,000 tonne barrier on 15 shifts, although our ultimate aim is to smash the 18-shift record in 15 shifts—and at the moment this looks quite possible' . The River Don works, which some people thought would be written off not long ago, is now securing important orders abroad and last month PPE news reported that the River Don works had received a pat on the back from a Canadian customer who thanked the works for the prompt delivery of a number of pressure vessels. To prove that this delivery performance was not a flash in the pan, the works has delivered two pressure vessels to an Australian customer months ahead of the original delivery schedule.

I am glad to read that there is to be a £1.4 million investment in the plant and equipment in River Don to help the workers to do even better. The Brimsworth strip mill, in the constituency of my hon. Friend the Member for Rotherham (Mr. Crowther), is beginning to recapture not only some of the market that it had lost at home but markets abroad as well.

In Stocksbridge we have the very important vacuum arc degassing plant with continuous casting capability which is a £27 million investment which will enhance capacity and competitveness from that plant. I believe that there is a similar sort of investment due at Scunthorpe.

Those are typical of the terrific investment programmes that have been made and there have been comparable investments in the private sector as well as the public sector in the British steel industry over the past few years.

We are told repeatedly by Government Members that the taxpayer has poured into the steel industry in the last five years between £4 billion and £5 billion in public money. They talk as if stacks of pound notes had been pushed into a furnace and burnt away to no purpose. The major part of that money is there for the taxpayer to examine in the form of new equipment, new blast furnaces, continuous casting plant and other plants such as the great stainless steel works in Sheffield, which is capable of competing with any other steelmakers in the world whether they are Japanese, American, German, Austrian, Swedish, French or Italian.

Given the right economic climate and management, which we have lacked for the past two years, we should have seen the full flowering and full dividend of that investment in terms of the flow of steel.

It is clear that it would be sheer madness to throw that investment away. It would be idiocy to cut further the capacity of the BSC, a great public corporation, to produce by the most modern equipment and methods created by this huge public investment. We are profoundly concerned that the so-called plan has as its primary design the destruction or serious curtailment of the tremendous capacity that we have built up with so much effort at the cost of so much.

The fears are shared by the men who work in the industry. The hon. Member for Flint, West (Sir A. Meyer) said that the steel and coal workers are passionate enthusiasts for the Davignon plan. Mr. Bill Sirs is quoted as saying something which does not sound quite like that. He said: UK steel consumption used to average 23 million tonnes until 1978. The rate of consumption at present is about 13 million tonnes a year. When the pick-up comes, God help us, because we will see the biggest avalanche of imported steel that has ever reached the country, while tens of thousands of steel men are now unemployed and walking the streets. Of course he is right. But, of course, the grotesque mismanagement of the economy over the past two years has produced a slump and a lack of demand.

Mr. John H. Osborn

What about the previous three years?

Mr. Hooley

The hon. Gentleman has a colossal nerve to interrupt with such a comment when he knows that in Sheffield alone unemployment since this Government took office has risen from 13,000 to 34,000. That has happened within two years, and he has the cheek to suggest that there is no economic mismanagement in that. He should go back to his constituency in Sheffield and explain what he thinks of that record.

I return to the question of steel. The steel workers are profoundly concerned that when we have an economic upturn—even this Government cannot manage a permanent slump—we shall be in danger of not having the steel capacity to satisfy the home demand, much less to give us an edge in international markets.

Reference has been made to capacity in the other European countries. According to a parliamentary answer I received recently, French capacity at the beginning of 1980—that is admittedly some time ago and the figure may since have slumped—was 30 million tonnes, German capacity 68 million tonnes, Italian 37 million tonnes and the United Kingdom's 25 million tonnes. One sees how disastrously we have slipped down the European league. Spain and countries outside the European Comunity are not included.

There are problems in the special steels area. My hon. Friend the Member for Whitehaven (Dr. Cunningham) has already asked about the Government's intentions in response to the Warner report. The report shows that imports of special steels take 55 per cent. of the United Kingdom market against 25 per cent. five years ago and 5 per cent. 10 years ago. In that time, employment in special steels has come down from 18,000 to 3,500, mostly in the Sheffield and Rotherham areas. Output was down from 70,000 tonnes to about 15,000 or 20,000 tonnes this year. There is clearly a serious problem that needs to be tackled. It cannot be tackled by massacring capacity even more than has occurred so far.

It is crucial for the Minister to say whether aid covers only direct aid to steel through the financing of deficits whether they occur in the public or the private sector. The private sector enjoys subsidies in aggregate on a far greater scale than the public sector. The key factor concerns the subsidies given to coal and transport industries in other EEC member countries.

One also has to ask whether the penalties imposed by the Government in this country on the gas and electricity industries will be taken into account when the effect of various aids on the steel industry in different countries is calculated. It would be preposterous if the Commission told the British Government that in 1981–82, 1982–83 or 1983–84 there was no question of offering any subvention, even should this be necessary, to the British Steel Corporation, Hadfields or anyone else when the world knew that subsidies to coal in West Germany or France were running 12 or 15 times above the level of the subsidy to the coal industry in this country.

If the Minister does not believe what I say, I refer him to the Select Committee that investigated industrial energy pricing policy. The subsidy per tonne for the calendar year 1980 was £15.18 in France, £12.18 in Germany and £1.36 in the United Kingdom. If that kind of subsidy is not included in the calculation when the Commission considers aid for the steel industry, it will make a mockery of any fair comparison between different industries in the member States.

There may be a case for some sensible attempt to plan the steel industries within the member countries. In present circumstances, given the disparities that exist in the ways the industries have developed or declined in France, Germany, Italy, the United Kingdom and Spain, it would be monstrous for the Government or any British Government to countenance the slightest reduction in steel-making capacity in the United Kingdom.

1.28 am

Mr. John H. Osborn (Sheffield, Hallam)

Approaching 1.30 am is not the ideal time to make a speech about the steel industry of Sheffield or even, following the speeches tonight, about our relationship with competitors within the EEC and the initiatives that the Minister has taken with the Commission in Brussels.

This week I attended a sober meeting of Sheffield chamber of commerce. Managements from all quarters of Sheffield reported on some of their difficulties. Labour Members have outlined the impact that the situation has had on employment. The difficulties of management have been great, for a variety of reasons. Sheffield Members have done their best to enable industries to keep going in the city.

The Sheffield Industrial Advisory Committee, of which the hon. Members for Sheffield, Heeley (Mr. Hooley) and Sheffield, Attercliffe (Mr. Duffy) and the right hon. Member for Sheffield, Park (Mr. Mulley) are active members, along with city councillors and industrialists, has had to watch contraction in the city.

There has been reference to the vast quantities of steel that are coming in from other countries and ending up in Sheffield and Birmingham. My hon. Friend the Minister of State has received a deputation on that very issue. It has been suggested that the steel is being dumped, but that has always been difficult to prove. It has been as difficult to prove to the present Government as it has to the Commission. As a citizen and as an observer, I have been immensely disappointed by the response to the energy problem. The problem is a challenge to Ministers. We thought that as we developed our oil and gas reserves, and because we had coal, we would inevitably have the cheapest energy in Europe for our high-energy-consuming industries. That has not been so. Our coal and electricity strategy has been such that our coal-fired power stations are producing electricity that is more expensive than that produced anywhere else in Europe. If Sweden—this applies to some extent to France—has nearly half of its electricity produced from hydro sources and the other half from nuclear sources, it is at an advantage when it competes industrially with Britain. This is a problem for the Secretary of State for Energy. We cannot reverse decisions that have been developed by successive Governments over 25 years.

I have no hesitation in backing the Minister of State and the Government. That decision is based on several years in the European Parliament. My hon. Friend the Member for Cheadle (Mr. Normanton) has been with me on many committees. We have met Davignon and heads of industry, some from the BSC and some from elsewhere. When we have felt that Eurofer has needed the backing of the Commission, that has been granted. Perhaps the inability of competitors to come together has been helped by the support of the Commission. The tragedy is that there is an excess of capacity in bulk steel, special steels and other steels in the Community. World demand may pick up. We hope that it will. We are now in a buyer's market and not a seller's market.

In the 1950s Britain had productive capacity and there was a seller's market. One of the tragedies, perhaps, is that Sheffield took advantage of that market. Those were the good days for Sheffield. There were other areas that did not have the manufacturing capacity. There was at that time the Iron and Steel Board and other mechanisms for fixing prices. There was still a seller's market in 1957. That was a time when the producer took advantage of his opportunity. In 1957 there was the restrictive trade practices legislation and in 1964 there was resale price maintenance. The need for this was more relevant to other areas of industry than to steel.

This country is now witnessing a repetition of what happened 50 years ago. I am old enough to remember what I was told as a young boy. In the 1920s and the 1930s we saw those wanting to buy steel hawking their orders around steelworks, and he who was foolish enough to take on an order at a low price was given the order. At the end of the day, however, he could hardly keep his business going. That is why the trade association which publicised prices developed—and perhaps the cartel elsewhere in Europe, and subsequently in the Community. I have mentioned this matter on previous occasions in the House, because in my earlier industrial days I was aware of what happened to Sheffield.

Today, the producer is in a buyers' market. My hon. Friend the Member for Brigg and Scunthorpe (Mr. Brown) talked about a price war. With the British Steel Corporation, there is the question of the State subsidy. That involves the EEC. We know about that. However, private steel companies are concerned. It is possible that the steel masters of Sheffield, whether they were forging, melting, rolling or casting, made a mistake in the 1930s in taking on orders at any price.

I hope that Opposition Members will think twice about their amendment, which declines to accept further reductions in steel manufacturing capacity. The one thing that we cannot stop is a reduction in capacity, either collectively in Europe or individually in one city, if the orders are not there. If that is happening, an ordered rationalisation of prices, quotas and State aids seems to be necessary. In Europe it is vital to have someone holding the rein. That is why I have been sent by representatives of the steel industry to encourage the Minister of State to reach an agreement with our competitors so that we do this in an orderly fashion, rather than in a disorderly fashion, throughout the Community.

I could say much more on this subject, but it is important that we give the Minister of State, the Secretary of State for Industry and other Ministers our backing to deal with these problems rationally and to call on our colleagues in the European Parliament to approach them rationally. I saw the report that was produced by the MEPs in connection with the documents that the House is scrutinising tonight. It contained an appeal to all of us to look rationally at the difficulties that face us in the Community. I therefore hope that we can work together positively and give the Minister of State the support that he needs tonight.

1.33 am

Mr. Tom Normanton (Cheadle)

In view of the late hour, I shall not keep the House longer than it takes to make three points. The first is an expression of view. Then I want to ask my hon. Friend the Minister of State to give certain assurances.

First, I endorse strongly the views already expressed, although perhaps inadequately, on the courageous and realistic approach that has been adopted by my hon. Friend the Minister of State in introducing this important debate. It was an example of the way in which increasingly we are recognising the problems which we face throughout industrialised Europe. The difficulties and problems which we share can be resolved only by a common approach to them. In his approach my hon. Friend shows that he accepts that fact of life, and I strongly endorse and support that approach.

There are two matters on which I should like to know the Minister's reaction. I am somewhat concerned to ensure that at the end of this debate and at the end of this year we can look back and see that the whole of the British steel industry, both private and State, has been treated with a degree of equal-handedness and not find that one sector, the private sector, is at the sticky end of the exercise. I hope that my hon. Friend will give the House that assurance.

Is the Minister really convinced that the representatives of the whole of the steel industry of Britain are playing an effective role in the institutions of which they are members—for example, the European Steel and Coal community and Eurofer? It is no good the House asking a Minister of a Government of either party to be the sole mouthpiece on behalf of industry. Industry itself has a vital part to play. The institutions are there, and industry must play its part. Our Continental competitors have been playing their role for as long as the European Community has existed. We must learn to play our part as well if not better than, the Continentals. If we fail to face the challenges, no Government action on its own can insulate any sector of British industry from the stark necessity to be competitive in a rough and hard world.

1.36 am

Mr. Tebbit

This is an awful time at which to be debating these matters. It has been a public holiday outside the House for an hour and a half already. I hope that we shall shortly enjoy it.

If the hon. Member for Whitehaven (Dr. Cunningham) and his right hon. Friend the Member for Salford, West (Mr. Orme) had been in my position during the past few months in attempting to negotiate the agreement, they would have come out with a similar agreement. It was inevitable that we should move in this direction. I have no doubt that had the hon. Gentleman and right hon. Gentleman been doing my job in the negotiations they would have fought as toughly as I did for the British steel industry. They would have been subjected to exactly the same pressures as we were.

The hon. Member for Whitehaven referred to the problem of the quota for hot rolled coil. It is remarkable that when it was discovered that the Commission's quota for the derivative products of hot rolled coil was larger than could be met by the Eurofer agreement for the limitation of British Steel's production of hot rolled coil, it was possible to find a way out of the difficulty. It was an immensely complicated problem to decide how the difficulty had originally arisen. It says much for the good will of those concerned that an agreement that can be lived with has been found. It will last us only for the third quarter, but I am confident that with the same degree of good will we shall reach a settlement for future quarters. The problem arose not in the negotiations in the Council of Ministers but in the negotiations between the industries, during which it was the BSC, not I, that made the running.

The hon. Gentleman made other points that I shall cover when dealing with points raised by other hon. Members. He complained about the import of foreign steel baths. He must admit that that is not due to a lack of demand for steel baths. It is the very reverse. It is due, once again, to a poor and uncompetitive supply.

My hon. Friend the Member for Southend, East (Mr. Taylor) referred to the economics of a collective farm and asked whether that was acceptable. I find a great deal of it highly unpalatable, but if my hon. Friend has a better way out of the problems I should be grateful if, as he did not offer a way out tonight, he would jot it down on a sheet of notepaper and send it to me and my colleagues in Europe immediately, as many of us are not Socialists and do not like this system. However, we must accept it as the only way out. If my hon. Friend has a better system, I look forward to hearing about it from him.

I believe that my hon. Friend was more concerned with the theology of the Community than with the difficulties that face us in the steel industry. However, I can assure him of one thing at any rate that will please him. Nothing of what we have done, and nothing that is in the Treaties, in any way restricts the right of my hon. Friend to go out tomorrow, or even today, and start a steelworks, produce steel and export it. There is no restriction on him at all until the moment when he begins to ask for public subsidies. That is when the problems will arise for him.

That is something that we all must bear in mind. We all must bear in mind that the problems have arisen through providing a subsidy. Measures are being taken to eliminate that subsidy so that we can get back to the free market economy which my hon. Friend and I wish to reach. I have an idea of how to do it.

The hon. Member for Rother Valley (Mr. Hardy) became a little over-excited about some of these matters. It is not for us to complain too loudly about those wicked foreigners who export things at a loss and sell things below the cost of production. It is just conceivable that if we do so others might hear the sound of the smashing glass in our own glasshouse. The hon. Member was a little over-excited about imports from a list of countries, with every one of which we have voluntary restraint arrangements. They are not unrestricted in the way that he tried to imply.

The hon. Member was right to refer to the long and sad history of decline in the steel industry. It is too late at night to go into the causes of that. The hon. Member should show himself capable of a little more understanding of the fact that the requirement to sell steel to car manufacturers has with it a requirement to produce cars, which has a requirement to sell them, which has a requirement to please the customers, who might prefer the cars that someone else makes, unless we do the job extremely well.

Mr. Hardy

The point that I was making—perhaps I did not make it clearly—was that one of the principal reasons for our failure is an inadequacy of investment over a long period. I had hoped that the Minister would accept that it is necessary for public and private investment to be maintained so that the industrial base of this country can be secured and we shall then continue to need the steel industry.

Mr. Tebbit

I must refer the hon. Gentleman for his reply to a little of what his hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) said. I was extremely glad to hear what he said about the success of the Government's policy for the steel industry in bringing about hitherto unknown peaks of efficiency and success in improving productivity and output. He paid tribute to the workers and the management of many steelworks. He made the point in a most eloquent fashion. I am extremely grateful to him, because it is a point that I frequently make myself. It provides the answer to those who believe that all that is necessary is more investment and that we could not have made better use of the investment that we already have. I am grateful to the hon. Member for Heeley for his support.

There was considerable interest in the cost and price of coal and coke. The cost of mining suitable coal in the United Kingdom is lower than in Germany, although, as everyone connected with the industry knows, we have quality problems. The German coal subsidy per tonne is higher than the United Kingdom coal subsidy to the NCB and brings German coal prices down to the world level. However, the BSC has the freedom to import, which German steel producers do not. The NCB, using finance from the Government, has been selling coal to the BSC at prices that are also competitive with world prices. Therefore, broadly speaking, both the German and United Kingdom industries receive their coal on similar terms.

I do not know whether any hon. Member has in mind the size of the external financing limit for either the NCB or British Railways, but I counsel Labour Members not to go on quite so much about the subsidies that go to German railways on coal mines. We do just a little bit of subsidising ourselves, and it is unwise to suggest that only the Germans do it.

My hon. Friend the Member for Brigg and Scunthorpe (Mr. Brown) raised a number of points. I assure him that the cartel that is being formed is only an interim solution and that the long-term solution is the ending of subsidy. The pricing measures of the cartel are much more difficult to police—prices are particularly difficult and production less so—but we shall try to keep the Commission up to its job.

Dr. John Cunningham

In doing his job—we accept that it is a hard one—and in keeping the Commission up to its job in this series of agreements, will the hon. Gentleman say why the Government would not find it advantageous to have a decision of the House on the record in support of our amendment to make the Commission face its responsibilities, or are the Government willing to accept further reductions and closures in the British steel industry?

Mr. Tebbit

I shall come to that in a moment. The policing of the measures is the responsibility of the Commission, which has a comprehensive monitoring system, a trained inspectorate and the power to levy fines. It is only the application of the pricing rules to distributors that will be the responsibility of member States after 1 July 1982. I hope that that helps my hon. Friends and others who raised the point.

The National Association of Steel Stockholders has been invited to a meeting with Commission officials on 30 July. The Commission is already well aware of our feelings about these matters, and I hope that they will be able to come to a suitable agreement.

Even at this time of night, I shall not trouble the hon. Member for Rotherham (Mr. Crowther) with the figures for Community crude steel production or capacity figures for the industry. I cannot tell him what production will be in 1985, and I do not believe that anyone else can.

As my hon. Friend the Member for Flint, West (Sir A. Meyer) said, one of the problems this evening has been to decide whether some of the critics want the policing measures to be effective. If they are not effective, they denounce them. They have a problem in that regard.

My hon. Friend the Member for Sheffield, Hallam (Mr. Osborn) was right to pin the problem of energy costs on the coal-fired power stations in this country, and I shall not go further than that. He was right also to remind us of the horrors of the late 1920s and 1930s, which also led to the formation of cartels.

I can tell my hon. Friend the Member for Cheadle (Mr. Normanton) that I am satisfied that we have been fair as between the private and the public sectors. I believe that the representatives of the whole industry are being effective in the institutions but that they could be more effective.

On the question of production levels, I repeat that I have no doubt that there will be no requirement for a cut in capacity below 13.9 million tonnes of crude steel output or 14.4 million tonnes of liquid as a condition of clearing the current financial year's funding. Beyond that, we shall discuss, alongside a number of other countries, our programmes for the recovery of our steel industry throughout Europe.

It is right to emphasise, as the hon. Member for Whitehaven and the right hon. Member for Salford, West did, that we have cut our capacity more than anyone else in Europe. We have contributed more to the resolution of the problem. I can give no guarantee that the problem may not become worse, or that BSC's performance may not become worse, but I remind the House that after 1985, as these measures end, there will be no restriction whatsoever on unsubsidised steel undertakings expanding their output to any extent that they wish. That is the challenge for the BSC.

I have no hesitation in recommending the documents to the House. I have the greatest sympathy for the spirit of the amendment, but I do not believe that it is within human power to give the guarantee that it asks for.

Question, That the amendment be made, put and negatived.

Main Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 7305/81 and 7847/81 on production quotas for steel, No. 7306/81 on state aids to the steel industry and No. 7825/81 on pricing rules for steel distributors; and welcomes the agreement reached in the Council of Ministers on 24th June as being in the interests of the steel industry.