§ The Minister of State, Department of Industry (Mr. Norman Lamont)
I beg to move,That the draft British Steel Corporation (Reduction of Capital) Order 1982, which was laid before this House on 6th December, be approved.In opening this debate on what is in essence a technical financial order concerned entirely with the British Steel Corporation's financial history, I wish to make it clear to the House that this order is not connected with the present problems of BSC. If BSC were now on course for achieving breakeven in 1982.83, as planned, we would still be debating this order tonight. This is not, therefore, the occasion on which to debate BSC's current serious difficulties, or the review of BSC's future strategy on which my right hon. Friend the Secretary of State said that he expects to make a statement before Christmas. That statement will provide the occasion for questions about the corporation's future. This order is concerned with the consequences of BSC's past losses as currently reflected in the corporation's balance sheet.
The draft order does two things. First, it reduces BSC's capital by £1,000 million and, secondly, it reduces the corporation's borrowing limit by £500 million, to £3,000 million. The order is being laid in draft under Section 36(4) of the Iron and Steel Act 1982 and will come into operation on 31 December 1982.
I should explain at the outset that the order will not involve the payment of any new money by the Government to BSC. The £1,000 million that is being written off represents past capital advanced by the Government to the corporation. The process of writing off the capital reflects the fact that the money has been used to cover the corporation's redundancy and closure costs, including the writing down of fixed assets, and funding past operating losses. That capital cannot now be recovered.
The reduction on BSC'S capital by £1,000 million completes the capital write-off provided for in the Iron and Steel Act 1981, when £3,000 million of capital and £509 million of long-term Government loans to BSC were written off. Those are huge sums of public money, and they reflect the financial consequence of the losses and the large-scale reduction in capacity and manpower that BSC has undergone during the past four years.
It might be helpful to the House if I were to explain in more detail the purpose of the capital write-off and why it is necessary. As I have said, BSC's capital reconstruction is concerned with recognising and then writing off the consequences of the past. The fundamental problems in BSC stem in part from the massive capital investment programme launched in the early 1970s aimed at increasing BSC's liquid steel capacity to between 33 and 35 million tonnes by 1980. As we all know, since 1974, in the wake of the first oil crisis, the demand for steel has fallen steadily, but it was not until we came to office in 1979 that BSC was allowed to make significant progress to reduce capacity and manpower to reflect the lower levels of demand.
The combined result of the huge capital investment programme and the delay in adjusting to the changed position of the market place meant that by 1979 BSC had far too much capacity, much of it, alas, very modern. It was greatly overmanned, and was making massive losses. 240 The scale of the adjustment process that BSC has undergone since April 1979 is remarkable. During that period, the corporation has reduced its manned capacity by 7 million tonnes of liquid steel a year. The numbers employed in the corporation have been reduced by about 50 per cent., or more than 90,000. BSC has written down its fixed assets by almost £1,500 million.
The first part of BSC's capital reconstruction, which, as I have explained, took place in 1981, left the corporation's consolidated balance sheet with a revenue deficit of £295 million at 31 March 1981, after the writing off of £3,000 million of capital under the Iron and Steel Act 1981.
During 1981.82, BSC's revenue deficit increased by £504 million to £799 million by 2 April 1982. This increase in the revenue deficit was made up of losses incurred during the year, further fixed asset write-offs and further provisions for redundancies and closures.
As the House well knows, BSC incurred further losses in the half year to 2 October 1982. These losses, together with further provisions, have increased the corporation's total revenue deficit at 2 October to well over £1,000 million. Hence, the Government have deceided to write off the full £1,000 million from BSC's capital provided for in the Iron and Steel Act 1982.
This order will take effect in relation to the figures as at 30 November 1982. The resultant reduction in capital will be reflected in BSC's annual accounts for 1982.83.
§ Dr. Jeremy Bray (Motherwell and Wishaw)
Can the Minister explain why he is writing off £1,000 million instead of taking advantage of section 19(3) and increasing the amount that can be borrowed to £4,500 million" Is he satisfied that BSC's assets should be valued at closed book value, which seems to be the basis for arguing that this write-off is needed?
§ Mr. Lamont
The basis on which the assets are valued, which I know the hon. Gentleman has raised before in relation to capacity, is explained in the accounts. It is, as the hon. Gentleman knows, a very complicated question because of the current level of capacity and what one expects it to be in the future. As to why we are writing down the capital instead of increasing the borrowing, the hon. Gentleman will appreciate that the assets behind the balance sheet have already been written down. We are adjusting the capital to reflect the commercial decisions that the corporation has already made.
A balance sheet for the corporation drawn up to show the position immediately before the write-off would show the capital of the corporation as standing at £2,932 million. After the write-off, this sum will immediately be reduced to £1,932 million. Similarly, the revenue deficit of £1,407 million will be reduced to £407 million.
The order is to be made under sections 18(7) and 19(2) of the Iron and Steel Act 1982 and requires approval in draft by a resolution of this House. I have already explained that it will come into operation on 31 December 1982, after which date the powers under section 18(7) will lapse.
Article 2 reduces by £1,000 million the total amounts of money paid to BSC under both the 1975 Act and the 1982 Act. By 30 November 1982, £2,237 million had been paid under the 1975 Act and £195 million paid under the 1982 Act, making a total of £2,432 million.
Some hon. Members may have noticed that the figure of £2,432 million differs by £500 million from the figure 241 that I gave earlier to illustrate the effect of the write-down on the corporation's balance sheet. This £500 million represents the corporation's commencing capital which was deemed to have been paid on nationalisation, and, while it is included in the overall total of the corporation's capital of £2,932 million, the write-off of capital is applied not against it, but against those sums of money paid to the corporation.
Article 3 sets at £3,000 million the total limit up to which BSC and the publicly owned companies may borrow, together with the sums that BSC can receive from the Secretary of State by way of investment. The amount to be written off counts at present towards the borrowing limit of £3,500 million.
Within whatever limit is now established, BSC needs to have available sufficient headroom against which to borrow for some reasonable period in the future. Reducing the borrowing limit by exactly the same amount as the capital write-off would leave BSC with headroom at 30 November of only £345 million. We have therefore decided to take advantage of the flexibility provided by section 19(3) of the Iron and Steel Act 1982 and to reduce the limit by only £500 million, which will allow BSC to borrow £845 million from 30 November without further reference to Parliament.
In conclusion, I should like to emphasise that this further write-off involves no new payment of money to BSC, and BSC will in that sense gain no financial benefit from it. It is an adjustment to BSC's balance sheet to remove certain of the consequences of the past. It does not affect BSC's EFL for the current year or for future years. The future strategy for BSC is currently under review, and, as I have said, my right hon. Friend hopes to make an announcement about decisions on that strategy before the House rises for the Christmas Recess.
§ 12.7 am
§ Dr. John Cunningham (Whitehaven)
I thank the Minister for the careful way in which he has taken us through the order. As he rightly said, it writes off £1,000 million of capital debt. That was provided for in the Act that we debated at some length in Committee.
The Opposition will not oppose the order. In general terms it makes sense to bring BSC's capital more into line with the revaluation of the assets. We also welcome the Government's decision not to reduce BSC's borrowing by a similar amount, because in the present financial climate that would have been a mistake.
The Minister said that this was not the time to discuss the wider situation facing the corporation. We understand that he should make that comment, but there is no hope at all that my hon. Friends and I will allow the Government to get away with it. We have chosen to debate the order, even at this late hour, to give the House as a whole the opportunity to discuss the new crisis facing the corporation.
Ironically, less than a year ago this major capital reconstruction was finally agreed by the House, and it involved sums in the order of £5,000 million. We welcomed that because we had believed for some time that such a a capital reconstruction was necessary to put the corporation on a sounder financial basis. However, in a 242 short space of time and despite the optimism expressed by the Secretary of State for Industry in the spring of this year, the corporation once again tragically finds itself in crisis.
Why has this new financial crisis arisen in the corporation's affairs? At a hearing of the Select Committee for Industry and Trade in the 1980.81 Session, shortly after Mr. MacGregor was appointed, he set out his views about his plan which took into account the coming financial reconstruction, as it was then. In his evidence in volume II, page 44, of the report, Mr. MacGregor highlighted what he regarded as five important points on which the success of his plan depended. It depended, first, on the volume of steel production for a proper utilisation of the plant that would be available: secondly, on a sensible level of prices; thirdly, on the exchange rate; fourthly, on inflation; and fifthly, on what were called cost reduction programmes. Those were all important matters, and directly relevant to the future viability of the corporation.
Unfortunately, in almost every respect, the position faced by the corporation has deteriorated, with the admitted exception of the rate of inflation. Mr. MacGregor's present view, as I understand it, is that continuing decline in capital investment by manufacturing industry in Britain and throughout the western industrial nations as a whole is preventing the corporation from getting anywhere near to the success it had hoped for at the time the evidence was given.
The view expressed by Mr. MacGregor is shared by the Confederation of British Industry, by the Trades Union Congress, by the Labour Party and by my hon. Friends on the Opposition Benches. As demand declines further, as it has done this year, there is in reality little hope of the corporation utilising effectively and efficiently even its existing capacity. We have seen the collapse of prices within the EC and, despite major redundancies and closures, the corporation has returned to financial crisis. It is no surprise that industrial output in the United Kingdom, as we learnt yesterday, is now at its lowest level for 15 years. Manufacturing output is almost 19 per cent. below the level of June 1979. Against the background of falling demand and the catastrophic decline in capital investment which is also well documented, it is not surprising that demand for steel—one of the basic ingredients in any developing industrial economy—has plummeted. Steel output has fallen by almost 31.3 per cent. since December 1981. Those figures are issued by the steel industry itself.
For the first 11 months of this year, steel output was almost 8 per cent. below the level in the corresponding period in 1981. We know that orders have fallen sharply and continue to decline. That decline has been accelerating since March 1982. In addition, imports have undermined our steel industry's position in the home market. Although imports are and will continue to be important, the appalling collapse in demand for steel is the root cause of the corporation's problems.
We now know that the European Commission plans to impose tough new controls on the Community steel industry in an effort to halt the wave of price cutting. According to the Financial Times, it proposes to stamp out discounts that have reached 30 per cent. in some sectors. In Sheffield, Rotherham and so on, we have seen how that discounting, price cutting and cheating on the quota and price agreement have undermined our steel industry in 243 both the public and private sectors. Unless it is stopped, there will be no hope of the corporation surviving the new crisis.
There is no escaping the fact that the Government's policies, together with the world recession, have brought about that devastating new problem for Mr. MacGregor and the corporation. The Minister has told us before that in addition, structural changes are taking place in the economy. That is true. However, change in the use of materials, set beside what The Daily Telegraph today called the plummet to a new 15-year low in output, is a secondary cause of the corporation's problems.
The Government's policies offer no chance of a recovery in the corporation's fortunes. There is no prospect that the corporation will recover if such policies continue. It is almost laughable to read what the Chancellor of the Exchequer said when introducing the Budget a few months ago. He said that he was introducing a Budget for industry and jobs. In reality, the misery has simply increased. We have seen efficient, modern steel-making capacity—much more efficient than exists and is being maintained in many competing countries—go to the wall. We have seen that at Round Oak in the West Midlands, in South Wales, on Teesside and at Scunthorpe.
It would be a calamity if there were further major closures, particularly at Ravenscraig in Scotland. It would be a catastrophe for Teesside if the Redcar plant were to close. Hon. Members may think that "catastrophe" is too strong a word, but I refer them to the recently published state of the region report, produced by the North of England county councils association. Just as people in Scotland have pointed out how central Ravenscraig is to the Scottish economy, so one can make out the same case for Redcar, Llanwern, Port Talbot, and the plant at Scunthorpe.
I shall mention deliberately, in the presence of the hon. Member for Islington, Central (Mr. Grant), the recent strange behaviour of some of his colleagues from Teesside when they spoke about the steel industry and introduced suddenly as new ideas proposals that had been made weeks earlier by the northern group of Labour Members. They said that Teesside should stay open on the same day that their hon. Friend the Member for Wrexham (Mr. Ellis) wrote in the Liverpool Daily Post:Two of Britain's five major steel plants must close.At the same time as the right hon. Member for Stockton (Mr. Rodgers) and his hon. Friend the Member for Thornaby (Mr. Wrigglesworth) were saying that plants must stay open, their hon. Friend the Member for Wrexham was saying that two plants must close. I find that not just incomprehensible, but when I say hypocritical—I am careful not to use unparliamentary language—
§ Mr. John Grant (Islington, Central)
I am sure that it is not unusual for the hon. Gentleman to find dissension within the ranks of his party. In this case there may be some dissension within the ranks of my party. The views of the party are clear: the five major steel plants should stay open. I shall make that point clear if I catch Mr. Deputy Speaker's eye.
§ Dr. Cunningham
I read in a north of England newspaper that the right hon. Member for Stockton and his hon. Friend the Member for Thornaby were rushing back to rally Parliament in defence of the steel industry. They are noticeable by their absence on the first opportunity 244 they have to mount such a campaign. That has been the case in most of the debates we have had on the steel industry.
§ Dr. Cunningham
The almost certain prospect that flows from the pursuit of these policies is that we shall be faced with more major job losses in steel-making communities. That is the reality of the desperate position to which the Government have now brought the steel industry. As my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) has pointed out several times, the assumptions on which the corporation is now basing its proposals for the future are so appallingly pessimistic that they must lead to further major job losses.
Although the Minister says that he cannot pre-empt the statement of his right hon. Friend the Secretary of State, I challenge him to deny that that is the case. We see no resolution of the corporation's problems unless there are major changes in Government policy.
We have opposed those policies consistently in the House. Although I reiterate that we shall not oppose the order, for the reasons I gave earlier, my hon. Friends are here in some strength so that the Minister is left in no doubt about how strongly we feel about what is happening to the steel industry and to the communities whose livelihoods depend so desperately upon a resurgence of its fortunes.
With losses again mounting, as they have been doing in the past few months; with orders again falling; with a declining share of a declining market, there is no prospect of a return to viability. The road leads to a progressive collapse of the steel industry with the unimaginable misery that that will bring to Scotland, the north of England and Wales.
Whenever the statement on the future of the big five plants is made, the Opposition will want a full debate before final decisions are taken.
§ Mr. Deputy Speaker (Mr. Bernard Weatherill)
Order. The House can see for itself that a large number of hon. Members wish to take part in the debate, which must end at 1.24 am. I hope that hon. Members will hear that in mind.
§ Mr. Teddy Taylor (Southend, East)
I apologise sincerely to the Minister for missing his speech. I had intended to be present but was delayed at a meeting in the House.
I should like answers to a number of questions before the writing-off of £1,000 million is agreed. How is it intended that equality of reduction of capacity and production within the EC will be achieved? Yet another meeting has recently taken place at which glowing assurances were given. However, since the Government came to power, jobs in the British steel industry have fallen by 80,000, representing over 50 per cent., while the reduction in the rest of the Community has amounted to 50,000. We have cut back to a greater extent than the rest of the EC combined.
I do not doubt the sincerity of the Secretary of State and the Ministers at the Department of Industry. They are among the straightest politicians in the House of 245 Commons. All the signs are that we play the rules in Euro-agreements while others follow their national pastimes. I fear that the same argument will take place over fishing. If the EC nations stick to the rules that they have agreed, at least three nations' fishing fleets will go bust. How does the Minister therefore intend to ensure that equality of reduction in steel capacity is achieved?
We are debating an improvement to the finances of British Steel. Does the Minister believe that the cartel arrangement of the Common Market makes sense or is consistent with Conservative principles? It astonishes me that the Labour Party should be opposed to the EC when it appears to produce policies that conform to all that a good Socialist would want. Those policies involve protection of jobs for social reasons, plenty of bureaucracy and plenty of money flowing around. For those reasons, I find it difficult to understand how Conservatives can find the Common Market tolerable.
Does the Minister accept that the cartel will develop inevitably into another common agricultural policy? The whole basis of the cartel is that prices within Europe should be higher than those in the rest of the world. Under this arrangement, our steel consumers will be worse off. There will be the choice, as happens in relation to farming, of spending a fortune in dumping cheap steel abroad or, as in the United States, of keeping steel works either closed or working at half capacity to deal with a surplus.
More cartel arrangements are being introduced. There will be one for at least two other industries. It means the extension of Socialism within the EC. Will the Minister at least give the assurance that he will try to bring in the necessary measures to make the cartel work? There have been reports of even tougher rules to prevent price cutting. There were similar assurances before reports were received of cuts amounting to 20 and 30 per cent. The Minister knows what happens. He will find that Italian steel makers will offer a British firm prime products at non-prime prices, or say "Buy a million pounds worth of steel and in your pockets next month there will be a cheque for £150,000 on account of poor quality"—although it is not poor quality.
The Minister knows what goes on. How does he propose, when there is a glut of steel and falling demand, to stop the price cutting, even if there is an army of steel policemen? As long as we have over-capacity and falling demand, even if there is one Euro-steel policeman chasing every salesman, and every telephone is tapped, people will find ways to cut prices and get contracts.
What is being proposed and repeated assurances about the cutting down on price cutting and being very tough to make sure that nobody cheats is not possible to achieve. We shall have to do the one thing that would stop the price cutting—set up a common purchasing agency and a common selling agency for steel within the EC. This would mean that every steel company producing steel according to the quota would have to give it, perhaps through a computer, to a central puchasing agency. That would mean that all the Third world countries that are sending in steel under the voluntary restraint agreements would have to go through this great new colossus in the centre. Anybody wanting to buy steel, no matter how small the quantity, would have to do so through the new colossus. If this is done, cheating could be avoided.
246 If we carry on in the way that we are going, we shall become more and more enmeshed in a Socialist cartel scheme and will find that, as before, the price arrangements and fixing will begin to be eroded and collapse, and all these bogus arrangements to provide for cutting will happen all over again. I know that we cannot refer, Mr. Deputy Speaker, to the people who are not sitting in the Chamber, but I see smiles on the faces of those in the Galleries, because they know that this is what will happen. What worries people, whether officials or hon. Members, is that they can see the problem coming.
I am sure that we shall return again and again for more write-offs of cash because in no way can the system work. There will probably be a modus vivendi for about three months, but then we shall start again. I appreciate fully the enormous problems that my right hon. Friend the Secretary of State faces, and that we shall be forced into a position, correctly, of keeping steelworks open when we do not have the demand to make them viable. We must do this because, until the Continentals make the cuts that we have made, it would be an outrage for us to cut our capacity.
I have three questions to ask my hon. Friend the Minister. First, how are we to achieve equity when all the previous assurances have not worked? Secondly, does he feel, as someone who knows figures, business and Conservative principles, that a cartel is acceptable to a Conservative? Thirdly, if we are to have this wretched cartel, how does he propose to avoid cheating?
§ Miss Betty Boothroyd (West Bromwich, West)
I am sure that the Minister is a well-meaning individual, but I took exception to his remarks when he tried to tell the House that we should not discuss the plight of the steel industry. It is true that this is a technical order, but it is also a financial order, and I shall talk about the closure of two big works in my area, Round Oak steelworks at Brierley Hill and the London Works Steel at Tipton. In both these cases, investment had taken place. Some of the most modern equipment in the country was in those operations. However, in both cases the Government were incapable of taking effective action to retain steel processing in a part of Britain where the making of iron and steel had taken place for a century. It is nothing less than scandalous that when the closure was announced London Works Steel was the subject of commercial interest by private buyers which was so quickly extinguished by a Government directive.
The Minister referred to investment in the mid-1970s and I want to mention the investment at London Works Steel. That works was composed of two re-rolling mills, of which one was fully renewed in 1974 and the other had £3 million spent on it in modernisation less than two years ago. Therefore, nobody could say that its machinery was decrepit or that the processing methods were out of date. In fact, some of the steel produced in those mills was of a special type. I am told by experts that the method of processing in my constituency has never been operated in any other BSC plant in the United Kingdom. It is a fact of life that those orders cannot be filled elsewhere. They will now go to steel producers abroad. That is yet another gift to our competitors from this Government. It is a gift which has been directly bought by the livelihoods of families who have lost their jobs.
247 The management of London Works Steel said that the closure was due to the collapse of the British economy—a matter for which the Government must bear full responsibility. However, the management also publicly acknowledged that 50 per cent. of the work's production was exported. The steelworkers' union constantly made the point that investment in the works need not go to waste, that the works need not close. In October a prospective buyer made it known that it wished to enter into discussions to purchase the mills as a going concern. That did not seem to suit the BSC chairman. When approached by the general secretary of the Iron and Steel Trades Confederation with an offer to sell London Works Steel as a going enterprise, he refused point blank to do so. We should know why such an approach was met with a refusal. We need to know why, when commercial interests became involved in a productive operation, there was a refusal by BSC to enter into discussions for the sale of those mills.
It is an amazing state of affairs because it is, after all, the Government's policy to privatise the public sector. It is Government policy to sell public enterprise and to move it into the private sector. Here was a prospective buyer, ready to discuss the purchase of an enterprise which exported 50 per cent. of all it produced, an enterprise which had a unique type of production, where 40 per cent. of its processing could not be repeated elsewhere in Britain. Twice, in representations to the Prime Minister, the general secretary of the steelworkers' union emphasised that and made the obvious point that orders would go to companies overseas if London Works was not allowed to continue in operation.
When BSC refused to involve itself in purchase discussions, the general secretary of the steelworkers' union wrote to the Prime Minister to ask whether the chairman of BSC was carrying out Government policies by his refusal to discuss the sale of the plant as a going concern. In representations to the Prime Minister he said:It is not too late for this decision to be changed. I would urge that immediate investigations should be made to enable the decision to be changed by the Chairman of the BSC, and that discussions should take place between the would-be purchasers and the London Works management with a view to purchase of the plant as an on-going concern.Surely the Prime Minister, who regards privatisation as a major plank in her Government's programme, should have intervened and taken up the initiative. BSC refused to enter into discussions. Therefore, there was no alternative but for the prospective buyers to discuss the sale with the London Works' management. That was again put to the Prime Minister and in a letter of 1 November she acknowledged that it was Government policy to encourage privatisation. She said:Discussions about the sale … should take place with the BSC as owners of London Works and not with London Works management.On the one hand we have the Prime Minister reaffirming the policy of privatisation, insisting that discussion for sale take place with BSC, and on the other we have BSC refusing to involve itself in any talks and insisting that that should be done directly with the works management.
The steel union's efforts were met not only with glacial indifference by the Prime Minister and BSC but even with hostility. There was total inconsistency in their approach. 248 The only common denominator was loss of jobs, loss of investment, loss of revenue. It is a policy of sack and smash.
Virtually no steel making remains in the Black Country. Even the lip service that the Government paid to the private sector has been abandoned. Millions of pounds of investment in efficient plant will be cannibalised as various parts are sold cheaply. In the past two years about 66,000 steel-making jobs have disappeared. In the West Midlands the figure is 20,000. In the West Midlands an average of 27 jobs have been lost in the industry each day for the past two years. It was once the most prosperous manufacturing region in the country. Anyone who knows it understands that it takes a great deal of incompetence to make a region that was once prosperous into an industrial invalid. The Government with their financial policies have finally managed it.
§ Mr. John G. Blackburn (Dudley, West)
I shall be brief, as many Opposition Members wish to take part in the debate.
I agree with the Minister that we are dealing with a situation that arose when the debts were accumulated. I met Mr. Ian MacGregor on two occasions before he introduced his corporate plan. I stressed the need for tube making and for the private sector to continue. Phoenix 2 resulted from the corporate plan.
Under the Iron and Steel Act we wrote off £.9½ billion. I said then that never again did I wish to be called on to vote to write off such a sum. On sober reflection, I believe that we would all agree that the plan has been an absolute failure. The finance and marketing has failed and the job losses are appalling.
I am always delighted to follow the hon. Member for West Bromwich, West (Miss Boothroyd), who has a deep love for her constituency and for the Black Country, a love that I share. It is remarkable that she chose to speak about the London works, only 10 miles from my home. The private sector offered to continue the work. The hon. Lady stresses the excellence of the work force and the plant. The company exports to a large extent. BSC thwarted the proposal. BSC has spent money to buy shares in the private sector and closed companies. It is morally and politically wrong for taxpayers' money to be used to buy shares in a private company in order to close it and to put men out of work.
A recent example was that of Manchester. 'The Round Oak steelworks dominates my constituency. The same has happened there. Part of the money has been used to buy out the private sector. The ultimate purpose, with a vengeance, was to close the firm.
My contribution will be in the spirit of that by the hon. Member for West Bromwich, West. An impossible task was given to the fine people of Round Oak and myself in that we were given five weeks to close down the plant. Corby was given 12 months and other plants even longer. There are 11 days to go before the plant closes.
I am delighted to announce to the House that this afternoon at four o'clock a firm bid from the private sector was placed in the Department of Industry. Only part is agreed, but there are other interested buyers. I say without shame that I do not care whether my men collect their wages from BSC or from the private sector, as long as they have jobs.
249 The company invested £8 million in a modernisation programme three and a half years ago. I remember reading BSC's annual report which boasted proudly that 26 per cent. of capacity was by continuous casting and that it would plough its efforts into that. How ironic that tonight it is saying that it will close Round Oak and its continuous casting process.
I shall watch with the utmost vigilance the bid now before the Minister. I want to see whether the same reaction comes from the same BSC board adopting the same policy that caused the job losses at London, could have caused them at Manchester and which, by the grace of God, will not cause them at Round Oak.
§ Mr. Donald Coleman (Neath)
The Minister was right to say that the order was financial and technical. He knows now that he was whistling in the dark when he thought that we would talk only about the order's technicalities and financial reasoning and not refer to the crisis in the British steel industry. The crisis is haemorrhaging this great industry into extinction.
The Secretary of State for Wales has not been looking after the Welsh steel industry as he should have done. I shall put on record what has happened to the industry in Wales.
In 1973 Wales had 11.6 million tonnes of steel making capacity. That constituted about 40 per cent. of the United Kingdom total of 28.9 million tonnes. By December 1981 the total steel making capacity in Wales had fallen to 6.75 million tonnes, almost 30 per cent. of the United Kingdom total of 23 million tonnes. The steel capacity in use in Wales was down to 3.5 million tonnes, or 20 per cent. of the United Kingdom total manned capability of 17.4 million tonnes.
Steel production in Wales in 1979 was 6.9 million tonnes which constituted 32.1 per cent. of the 21.5 million tonnes produced in the United Kingdom. In 1981, steel production in Wales amounted to 4.4 million tonnes, which was 28.2 per cent. of the 15.6 million tonnes that was produced in the United Kingdom.
A further blow that we have suffered is reflected in employment in the steel industry in Wales. In 1974, the number of people employed in the steel industry there was 63,700, which was 16.4 per cent. of the total employed—389,000—in the United Kingdom. By 1978, that figure had fallen to 49,000, which was 14.3 per cent. of the then total in the United Kingdom of 343,000. In 1981 there was a further reduction to 24,800, which amounted to 11.4 per cent. of the work force of the BSC in the United Kingdom.
Those figures show that Wales, which has less than 5 per cent. of the total United Kingdom population, has suffered about 33.4 per cent. of the total job loss in the United Kingdom steel industry. It has suffered 42.4 per cent. of the loss of steel production since 1979 and more than 70 per cent. of the loss of steel making capacity.
In recent weeks the BSC has announced further reductions in employment in the industry, totalling about 6,500 jobs. Of those, over 1,300 are due to be lost in Wales. We have taken enough in Wales. I hope that before the Secretary of State makes his announcement, the figures that I have quoted will be borne in mind.
§ Mr. Peter Hardy (Rother Valley)
The problems facing our steel industry are largely the result of Britain's moribund economy. What growth there is seems to be related to North Sea oil and gas extraction. Without that, Britain's position would be intolerable by now. Without that, the destruction of demand would have been more obvious. It would also have been obvious that the Government's role was that of principal executioner. The consequences of our present position are disastrous for the steel industry and many industrial areas such as the one that I represent.
The Government believe in only a tenuous relationship with industry. They have largely ignored the weaknesses and crises that our steel industry has faced. They seem to be dominated by the view either that they are powerless to help or that they should not use their power to help, at least until the weakness has resulted in inescapable bills such as the one represented by the order.
This dreadful year of 1982 is the year in which we imported, for the first time in our history, more manufactured goods than we exported. The implications for the steel industry are colossal. The Minister should know that the steel industry in the Rotherham area is as good as in any steel area in the world. We are not seeing rationalisation there. We are approaching a withering. While attention is focused on the five major plants, we have had further redundancies in recent weeks. There were job losses a few days after my hon. Friend the Member for Rotherham (Mr. Crowther) spelt out the case. Three or four weeks earlier, when there was a debate on steel imports, I illustrated the grave needs, yet we have had further redundancies. In its last interim statement BSC stated that £330 million for the cost of closure and redundancy was not included in the figures.
Those comments are true about the private sector. We said earlier this year that what the Government were doing was far too little far too late. I do not know yet whether the Government have made any significant payment under the arrangement that was announced then. If they do not spend the money soon there will be little of the private sector left for the Government to assist. I speak of the private sector, not in the West Midlands but in South Yorkshire. I know that its anxieties are acute, because the Government seem to be unaware of reality.
Only last week, the Government assured me that the monitoring arrangements of Customs and Excise were adequate and that there was nothing to complain about. Yet for months, the Government have had example after example of dumping and misclassification. Our competitors must be laughing as they recognise that they are successfully exporting their unemployment to us. While they are doing that, they are wiping out our industry so that, if there is a recovery here, we shall not be able to meet demand but will have to rely on foreign steel makers to provide the raw materials that the remaining industry in Britain will require.
The Government should learn from the United States. The Americans acted decisively when European penetration of their market reached only 6 per cent. There are parts of the British steel sector where import penetration has reached 70 per cent. and still the Government take no action.
The problem has reached the point where, in my constituency, I am within sight of there being 20,000 251 unemployed people. The consequent public expenditure cost next year will be well in excess of £100 million. If the Government are worried about public expenditure, let them help industry before it gets into a mess and before people are put on the dole. It may be that any action they take will be too late for those who expect redundancy as a result of an announcement that was made in my constituency yesterday. At BSC chemicals, Orgreave—the tar distillation plant—the head office and the laboratories are about the be closed if a purchaser cannot be found. And the reason given by BSC? Because of a falling market, the capacity is excessive.
The market is falling. It is in decline like the steel industry and Britain. The cause is the Government's policies, which they seem to persist in pursuing. We cannot vote against the order. I wish that we could. We need to be able to record our disapproval of the Government and the foolish policies that they pursue.
§ Mr. James Tinn (Redcar)
Since our last debate on steel three weeks ago, further heavy blows have fallen on the industry on Teesside and in many other areas of the country. Even while we wait anxiously for news about the fate of the five major steel plants, further massive cuts in the work force have been announced. One thousand seven hundred job losses were announced on Teesside alone. That is more than three times larger than the number announced for any other area, and there is no sign that they will be enough.
It is a sad reflection on what has been happening recently, and the stage that we have reached, that a senior union officer who was interviewed on Tyne-Tees Television after the cuts were announced said that the news was "almost a relief'. Is 1,700 for the dole queues a relief?
In an area such as Eston—one of two employment areas in which the Redcar plant is situated—male unemployment is already 37 per cent. Unemployment in Redcar—the other employment area—is more than 30 per cent. What the union officer meant by the announcement of the cuts being "almost a relief' was that the news was better than the complete closure that had been forecast earlier, and which was mentioned only last week by some members of the Social Democratic Party.
It would be hard to over estimate the anxiety on Teesside now. It is not only the workers who are most likely to be directly affected who are worried stiff by the prospect of closure. All those who depend indirectly on the Redcar plant, shopkeepers for example, and many other people, are worried. Thirty thousand would be a conservative estimate of the number of those who would be caught in the whirlpool of a steel closure at Redcar. The mind boggles and my stomach turns at the prospect.
That is why I welcome the opportunity that is provided by the debate to urge on the Government once again the full extent of their responsibilities and the full magnitude of the crime that would be committed if the worst were to happen.
What is the industry doing to help itself? Once again the steel workers, not least those on Teeside, are cooperating in an exercise which, yet again, will decimate the work force at all levels. Bitterness and despair are there in plenty but so is common sense and cool heads. On 252 Teesside the corporation has put forward proposals which it believes will give the best chance of retaining the existing facilities intact.
The corporation calls it a far-reaching plan that is aimed at cost savings that would get Teesside to a break-even position on an output of 41,000 tonnes of liquid steel a week, although there is no guarantee that orders will be forthcoming to match even this output. Once again it is calling for massive shedding of men. Numbers are to be cut to 7,500 and many of the cuts will take place by the end of March. Detailed discussions have already started with the unions on a range of cost-cutting proposals, and all these are on top of the economies that had been achieved by March 1982. The House may recall that I mentioned during the previous steel debate that these totalled £136 million over the past two years.
During the earlier debate on steel I spoke with justified pride of what the steel industry at Redcar had achieved until March. At this early hour in the morning, after a long day for us all, I have touched only briefly on what is already being done to cope with the near disaster that has followed the catastrophic surge in imports from countries such as South Africa, Japan and EC member States.
I have been speaking only too inadequately of what has been achieved by men whose lives have been dedicated to the steel industry and whose families are dependent upon it. They have never been feather-bedded and I become angry when a few Conservative Members suggest that they have. They have worked hard in a tough and sometimes dangerous industry. They are working even harder now. They need support—more than is offered in the order—against the unfair competition which earlier this year frustrated their substantial achievements. What still remains of our steel industry is its very roots. They must be preserved for the better days, the revived demand, the spring-time that surely must come after the longest winter that any of us can remember.
§ 1.3 am
§ Mr. John Grant (Islington, Central)
I preface my remarks by saying how disturbing I found the comments of the hon. Member for Dudley, West (Mr. Blackburn), which deserve a great deal of attention.
I was sorry that the hon. Member for Whitehaven (Dr. Cunningham), the Opposition spokesman in this debate, spoilt what was otherwise an extremely sensible and relevant speech by rather petulant and petty remarks about some of my right hon. and hon. Friends. When he made those remarks, there were only nine official Opposition Members in the Chamber, despite all the Labour Party's steel constituencies. There are only five present now. There were three Conservative Members and two alliance Members. I do not think that any party has a great deal to boast about when it comes to attendances.
Clearly it would be wrong to oppose the motion. The order allows the Government to write off another £1 billion by the end of March next year if the BSC losses continue at their present rate, which is about £1 million a day. It seems that the Government will have to bail out the corporation again. I hope that they will assure us that that will, if necessary, take place.
We are entitled to consider the background to the order, which is not merely bleak but catastrophic. It is unfortunate that the debate is taking place without our having the advantage of knowing the Government's decision on the big five steel plants. What is especially 253 disturbing is the dismal approach or the random cuts that are pre-empting the decision that we are told is imminent. During the past few weeks, about 6,000 job losses have been announced. We shall in that way end up with far more redundancies than we would with a major closure, unwanted though that may be. There seems to be a deliberate continuation of the trend of recent years during which the work force has shrunk remarkably.
I do not expect the Minister to answer many questions tonight, but perhaps he can tell the House whether we face an accelerated redundancy programme across the corporation as the price for keeping open some plants. Will parts of BSC be auctioned to shore up finances? Despite this order, there are suggestions of privatisation of the oil platform building yard in Scotland, of chemical interests and of the special steel business in Sheffield. I hope that there will be clear answers in the Government statement that was promised by the Prime Minister for early next week.
I hope that the Minister will tell us tonight about his view of the prospect of meeting the 1985 deadline for the Davignon plan, by which time all State aids for the steel industry will be abolished and the European market will be stabilised. That may be a worthy aim, but the target date increasingly seems like a pipe dream. I do not question the policy, but the problem will be putting the aims into practice. The simple fact is that our restructuring has not been matched, even remotely, by our European partners. Their higher import penetration—this is the Government's view and one must accept that it exists—has been matched by higher compensatory levels of exports.
We must also discuss the imports from third countries, which are becoming a fiasco. I am talking about third countries and not Third world countries, because there is sometimes a misunderstanding about that. I am talking about Japan, Spain, South Africa and some East European countries. The European Community's price and quota regime is inadequately policed. The Government have said that a bundle of new measures is on the way and that they propose to stop the cheating. We must hope that those measures will prove effective, but they are still only proposals.
We must also hope that, for a change, other European steel producers will meet the latest Davignon plan for reduced capacity and that our past efforts are fairly reflected so that we are not conned again. Even if all the proposals are carried out, the Steel Industry Management Association's forecast is that during the second quarter of 1983 there will be a flood of third country imports into Europe, which it fears could wreck the Davignon plan. The association fears that we may once again be the only country that makes real cuts and that dumped imports will undermine our position even further.
The association is deeply involved in the industry. Its view suggests to me a marked lack of confidence in the Government's political willpower, which is a sorry comment on the Government. There is a vicious circle through lack of demand and less steel and energy being used. There are knock-on effects. I am told that BSC's capital development programme for 1983–84 has been delayed so that only a negligible amount of steel pipeline will be required next year, compared with the past, so much so that everyone working in that part of the industry has been told to do what he can to find overseas 254 consultancy work to make up the leeway. I hope that the Minister will pass on those comments to his colleagues at the Department of Energy.
There can be no doubt that the key to the steel industry's future is for the Government to take immediate steps to generate a national economic recovery. We require a prompt reflationary package for small manufacturing industries, which, by any yardstick, are in a state of acute depression. But even if the Government drop their doctrinaire refusal to opt for economic common sense, the effect will take some time to work through. My right hon. Friend the Member for Stockton (Mr. Rodgers) has proposed a moratorium on all steel closures for 18 months. We know that there would be a high cost in that respect, but it is fair to point out that other industries enjoy direct subsidies of a kind that the steel industry does not.
I feel sure that the Minister will not be able to offer any cheer tonight and that this order must go ahead. However, the necessity for it is another indication of the overall failure of the Government's economic policy.
§ Dr. Jeremy Bray (Motherwell and Wishaw)
My hon. Friends and Conservative Members have spoken of the social devastation and the industrial vandalism being wrought in the steel industry today. It is an act of industrial destruction such as Hitler was never able to achieve, and it is all in pursuit of what I believe to be an economic and arithmetical mistake on the part of the Government.
I am not talking about the general economic assumptions made by BSC, which were proved wrong before the ink was dry on the paper on which they were written. Instead, I want to talk narrowly about this order, and the effect that it has on the BSC balance sheet. There is a case for writing off the accumulated revenue losses which, with redundancy and closure costs, now amount to well over the £1 billion reduction in indebtedness which this order will make.
The advances under section 18 of the 1982 Act and the preceding Acts are intended to finance investment as well as operating losses. We must look at the assets which are the counterpart of that indebtedness. The valuation of those assets in the annual report shows that they are recorded at original cost less accumulated depreciation, even though the replacement values may have escalated three or four times since the plants were built.
The closure of any of the big five would cost, not the £200 million to £300 million about which the press talks, but well over £1 billion apiece. Therefore, the cost of the operating losses in maintaining any one of those big five plants, at, say, £50 millions a year, is the cost of preserving in usable form a capacity that is worth well over £1 billion. The operating losses are small in relation to that. It is not only good accounting practice but good political practice that the assets of the nationalised industries should be valued at their replacement costs.
The Department of Industry is responsible for the immoral practice of allowing the British Airports Authority the opportunity of revaluing its assets at replacement cost, and the excessive profits are stashed away so that nobody can see what is going on. If, however, because of economic difficulties and inevitably high operating losses, the Government want to cook the books so that the losses appear small, the assets are not revalued 255 at replacement cost. As with the British Steel Corporation, we are told that the assets are valued at original cost less accumulated depreciation.
If cost comparisons are made with other countries, particularly with Italy where money disappears when it is paid out by the Government not only to the steel industry but to many other industries, there could be unfair cost comparisons between Italian costs and British costs in arguments about levels of subsidies and so on.
The answer to the problem is quite straightforward. The British Government can make a fairly standard valuation of the replacement costs of steel capacity anywhere. Those are the capital values against which the depreciation and interest charged can be calculated in arriving at the level of subsidy and deciding whether overseas plants are operating profitably.
Accounting practices are different among Community members, and there is no possibility of aligning those in the short term. However, in dodging the issue, the Government are hiding the nature of the decision that they are about to take on the major capacity in the basic core of the steel industry.
Customers are paying too little for steel—
§ Dr. Bray
—and the cash flow from depreciation in the steel industry should be available, if not for new investment in steel, at least for creating new jobs in the steel areas, because the capital investment required to allow basic industrial capacity to move into new industries will be no less than that required for the steel industry. Therefore, the Government—perhaps successive Governments—are grossly misleading themselves, steel customers and Parliament about the the true nature of the costs and the decisions that they are facing.
This is a serious matter, and I hope that the Minister will explain both what the Government plan to do and what consideration they have given to the replacement value of the assets that they are so wantonly scrapping.
§ Mr. Bill Homewood (Kettering)
I have only a few minutes at my disposal, as it is the wish of the House that the Minister should have an opportunity to reply.
I rise only because of the unsatisfactory end to our most recent debate, in which not one hon. Member was supportive of the Government's position. Indeed, the ministerial reply was complete and utter waffle and none of the points made by hon. Members was answered.
The hon. Member for Dudley, West (Mr. Blackburn) and my hon. Friend the Member for West Bromwich, West (Miss Boothroyd) talked about efficient plants that I know well and which have gone to the wall in the face of unfair competition.
In our recent debate, I was looking for simple answers. The arguments of the hon. Member for Southend, East (Mr. Taylor) are often convoluted. He seems to believe that there is some sort of "cartelised" Socialism within the Common Market. Like the hon. Gentleman, I wish that we would get out of the Common Market, but it is a load of nonsense to believe that there is some sort of Socialism within the steel industry cartel.
If the Government argue that productivity in the steel industry should be the same as our overseas rivals, if they then admit, as they have done time and again, that 256 productivity in the United Kingdom now equates with Europe, and if wage levels here are well below those in Europe—something that they never deny—how can they argue that we are not competitive? How can it be argued that some other force enables our overseas competitors, particularly in the EC, then to undercut us in the home market?
Exports continue to increase not from third countries as has been suggested—those exports will be a menace in the future, but they are not at the moment—but from the Common Market. We should be flooding the Continent because of our competitive position. Productivity is equal and wages are lower. What other elements are there? Our competitors know which elements are different. They know that there is a higher subsidy on every type of steel from the EC. They know that we are bottom of the league for electricity subsidy, for coal subsidy, for gas subsidy and for freight subsidy. That is the difference. They know that sterling is overvalued, no matter how they criticise our policies for bringing sterling down. They know that it is too high. They know that, no matter what our workers do, we cannot compete with the Common Market in steel. It is not free trade but unfair trade.
That is why Round Oak is closing. That is why the London Works Steel Company closed. It does not matter whether we close a large steel works because we know that within the next 12 months 25,000 to 30,000 more jobs will be lost in the steel industry. Those jobs may be lost at one works or 6,000 jobs may be taken from each of the remaining five works.
I have to go back to my constituency and try to explain to those people that one of the most modern steel works in Britain cannot compete because it is undermined by unfair trade. Those responsible should answer for that and not me.
§ Mr. Norman Lamont
I did not mean that the House should not raise under this order any matter that it wished to. In my introductory remarks, I meant merely to make it clear that I cannot anticipate what my right hon. Friend the Secretary of State will say in his statement which will be made within a few days. He will wish to address his remarks to many of the points that have been raised.
My hon. Friend the Member for Southend, East (Mr. Taylor) asked three questions about the EC regime. He asked, first, how we envisaged that other countries would be made to cut their capacity in line with ours. What we have on our side is that aid by individual Governments to their steel industries has to be authorised by the Commission. We have made it clear to Commissioner Davignon and Commissioner Andriessen that we expect the Commission—we have every reason to believe that the Commission agrees with us, as this is its policy and not just ours—that State aids should only be approved where there are reductions in capacity in line with what the Commission sees to be required in Europe.
We have made it clear that we expect other countries now to carry the burden of adjustment. My hon. Friend asked how I reconciled the principles of a cartel with Conservative policy. I answered that question when I spoke in a previous debate. I told the House that I found it ironic and surprising for a Conservative Minister to be presiding over a cartel. A cartel will not necessarily last forever. A cartel only makes sense provided that the policy 257 of raising prices is accompanied by reductions in capacity. It would be a nonsensical policy unless it went hand in hand with measures to reduce capacity.
§ It being one and a half hours after the commencement of Proceedings on the motion, MR. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted Business).
§ Question agreed to.
That the draft British Steel Corporation (Reduction of Capital) Order 1982, which was laid before this House on 6th December, be approved.