HC Deb 19 January 1982 vol 16 cc253-60

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Brooke.]

10.26 pm
Mr. Robert Maclennan (Caithness and Sutherland)

When the news of the calamity of the closure of the smelter at Invergordon broke I wrote at once to the Secretary of State to ask for a full debate in the House on the implications of that closure for the Highland economy and for the Scottish economy. I heard last week only that the Secretary of State was pursuing that possibility through the usual channels.

I also wrote at the same time to ask for an Adjournment debate to raise the issues which are of consequence to my constituents and those in the northern part of the mainland Highland area in the expectation that the Government would not be speedily forthcoming with a full debate. Indeed, that expectation has been fulfilled, as the official Opposition have had to provide a Supply day to enable the subject to be debated fully on Thursday. I welcome that lengthy debate. No doubt many important contributions will be made which will raise issues that it is not open to me to touch upon in the space of a short adjournment debate.

There are, however, important issues which can be raised even in a half-hour debate. There is the crucial importance to the economy of Ross and Cromarty and of Sutherland of the employment offered at the smelter hitherto. Directly as a result of the closure, 890 jobs have been lost, but on the basis of a pronouncement by the Scottish Office, based, I understand, upon an academic study conducted earlier by Aberdeen university, the indirect but nonetheless consequential loss of jobs is about another 600. The total of 1,500 lost jobs in the inner Moray Firth area has the consequence that the closure of British Leyland would have upon the West Midlands.

That is the seismic consequence. Those working at the plant have been endeavouring to draw attention to the seriousness of the position. Mr. Archie McCreevy, Mr. Sandy McNab and their colleagues have most feelingly described the tragedy for them and for those whom they represent. Mr. McCreevy is reported to have said yesterday: We feel this is an issue which affects the whole of the Highlands—there is no corner that we haven't taken employees from to work at the smelter". That is true.

So far, there is no sign that the Government will measure up to the scale of the problem. Some questions have already been raised in the House about the precipitate negotiations that preceded the closure on 29 December. What happened is not entirely clear. Conflicting accounts have emanated from the Scottish Office and from the company. However, I shall not dwell on those conflicting accounts more than is necessary to discover the Government's attitude towards finding a new operator for the smelter.

That is the issue that the Government must face. They must throw their full weight behind the task of finding a new operator. From the Secretary of State's comments in the House yesterday in reply to my question and those of others, it is not clear what steps the Government are taking or what negotiations the Government would enter into with an alternative operator. It is not clear whether the Government are turning over the task of finding an alternative operator wholly to the Highlands and Islands Development Board. In general terms, they have expressed their support for the board's quest for an alternative operator, but that is not enough. We must know more about the terms upon which an alternative operator could hope to reopen the smelter.

The two main factors that have apparently led to the disaster are the recession—the downturn in demand and the price of imported raw materials—and the price of power. There is some doubt about which factor the Government believe led primarily to the closure of the smelter. It is clear that the aluminum industry has been going through an exceedingly difficult period in the past: year. Although that is partly the result of the world recession, there is considerable evidence that in some places there has still been effective growth in output. Indeed, new smelters are being built in some areas. Only on Saturday, the Financial Times reported that Alcoa was entering into a contract arrangement with the Korean Construction Company to build a new aluminium smelter in Perth, Western Australia and substantial output is planned for 1986. There are other islands of prosperity in the industry and, furthermore, as recently as 14 October 1981 in the Financial Times survey and supplement on aluminium, its specialist reporter—Roy Hodson—pointed to the prospects of an upturn in world aluminium demand in the middle 1980s. There seems no reason to believe that those projections are unreal or unlikely.

It must be said that the Highlands and Islands Development Board, which has commissioned its own study—the results of which were announced yesterday—has come to the same conclusion; that the medium-term prospects of aluminium production are good. If that is so, why did die Government allow this, contraction of British aluminium smelting to occur? Would it not have been wiser to seek to come to an arrangement which bridged the period, prior to the upturn in the world economy, when that increase in demand was expected?

The second question over which large doubt remains is, of course, the price of the power. There is no doubt that the company has regarded that as crucial and makes ats position in Invergordon special and apparently different from the position in Anglesey of Rio Tinto Zinc and of the Alcan Aluminium smelter in the North-East. The Government should provide the House with the precise information about what differences there are in the power costs available to the three companies. Why is it that when the Government have spoken of the power costs issue, they have simply said that the cost of power to the British Aluminium is half that available to other manufacturing companies in Scotland?

In itself, that is completely meaningless. The true question must be: what is the cost of power to other smelter operators, both in Britain and abroad? As I understand it, the Commodity Research Unit in London and New York initiated a study into the pricing of power to the aluminium industry in October. Do the Government not have the facts? If not, why not?

The Government's attitude to the issue appears to have been clearly displayed in the short debate that took place in the middle of the night on 22 July 1981 when the Under-Secretary spoke about the situation. He mentioned the dispute about power costs in that debate between the company and the hydroboard. He said: The dispute may not be finally resolved for some time. He continued: The Government are not a party to the 1968 contract and are not, therefore, directly involved in the dispute. When answering the speech made by the hon. Member for Stirling, Falkirk and Grangemouth (Mr. Ewing), he continued in the same vein: The contract is a matter for the parties. It is difficult to see how it could be renegotiated unless both parties sought renegotiation. There is no sign that the British Aluminium Company would agree to a renegotiation that would reduce the deficit. There was certainly never any question of that. Referring to the hon. Member for Stirling, Falkirk and Grangemouth, the Under-Secretary continued: The terms of the contract are matters for those who, in a previous Labour Government, set out on the path of negotiating a contract in 1968 that would last until the year 2000. As far as one can judge, there it is likely to rest. It seems that it will remain a contract until then."—[Official Report, 22 July 1981; Vol. 9, c. 467.] What an astonishing turn-up! Instead of the contract lasting until the year 2000, as the Under-Secretary of State predicted, it lies in ruins. It was terminated by the agreement of the two parties without apparently the intervention of the Government to seek to renegotiate its terms.

The Minister of State, Department of Energy (Mr. Hamish Gray)

Nonsense.

Mr. Maclennan

The Minister says, "Nonsense." Is he saying that the chairman of British Aluminium in his letter to all hon. Members was not telling the truth? Perhaps the Minister who replies will make that plain. Mr. Utiger, the chairman, said: It was not possible to negotiate revised terms for power which would make the smelter viable so the company had no alternative but to close the plant or face liquidation. In amplification of that statement that it was not possible to run the company viably and that apparantly the Government were not willing to renegotiate, Mr. Utiger added: At no stage did the Government negotiators indicate that they had authority to offer any particular package either short or long term. If the company did not believe that the Government were in a position to negotiate, either the Government were playing their cards exceedingly close to their chest or the facts are as the chairman suggested and the Government were not willing to make a proposal which the company considered amounted to a renegotiation of the contract and pricing for power which would enable the company to conduct the operation viably. I have no doubt that that issue will be returned to on Thursday.

The £10 million that the Government offered to the Highlands and Islands Development Board, important though it is, will do nothing to replace the 1,500 lost jobs, and the Highlands and Islands Development Board chairman, Admiral Dunbar-Naismith has made that plain. The Government must make it clear that they are willing to allow a contract on power pricing that will enable another company to operate the smelter on terms that are competitive with those that are available to other companies that are engaged in the aluminium smelting business in other areas and in the rest of western Europe.

Secondly, the Government must make it plain that the site and the plant will equally be available to an operator coming in who is prepared to take them over. These are the two questions that above all the Minister should answer clearly. It is no good saying that the Highlands and Islands Development Board is empowered to go scouring for new operators unless we know on what terms the new operators will be invited to start the work.

What has happened is a potential tragedy. I say "potential" because I still hope that the Government will show the will to avert it.

10.43 pm
The Under-Secretary of State for Scotland (Mr. Alexander Fletcher)

I am bound to say to the hon. Member for Caithness and Sutherland (Mr. Maclennan) that everyone in the House hopes that there may be a prospect of a new operator coming in to Invergordon to start up the smelter, but it would take a better understanding of the facts than the hon. Gentleman has displayed in this short debate before that could possibly come about.

The hon. Gentleman began by referring to the crucial importance of the smelter to the economy in the inner Moray Firth area. No one could dispute the importance of the British Aluminium smelter to the local economy. The repercussions of the closure, as the hon. Gentleman has rightly said, are not restricted to the 890 jobs that are lost as a direct result of the closure. There will be another 400, 500 or 600 jobs indirectly affected in the area as a result of the decision of British Aluminium to cease production at the smelter.

I have been surprised by some of the remarks that have been made by Opposition Members and I wish to make it clear beyond doubt that the decision to close was entirely a matter for the company. The company made that decision after consulting the Department of Industry and the Scottish Office towards the end of last year.

It is because of the damaging effect of the closure on the local economy that in the time available to us we made every effort to avoid closure. The hon. Gentleman quoted from a document that he said he had received from the chairman of British Aluminium. I shall not quote from the document, but refer only to the hon. Gentleman's comments. The document stated that the Government did not show willingness to consider with the company a method of keeping the smelter going in the short term.

If the hon. Gentleman is in any doubt on that matter, I refer him to the joint statement that I made with the chairman of the company earlier this month, when at the request of the trade unions, after I visited Dingwall and Inverness, I had a further meeting with the chairman. The trade unions asked me particularly to do that. Although I told them at the time that I was fully aware of the company's view, I felt, because of the great importance of the matter to the trade unionists, that the least I could do was to have yet another meeting with the company. I make no complaint about that request.

That meeting confirmed the view that British Aluminium does not wish to restart the smelter on its own. It made it clear in that statement that the smelter would be restarted only by a new company. That would mean a new company and a new power contract. To keep the matter clear, it suggested that it might take a minority interest in a new company, but it would not be the initiator of a venture to restart the smelter. I would not like any hon. Member to be in any doubt about that.

Faced with that situation, the Government have taken up a two-pronged attack on the problem. The first and most urgent is the attempt to find a new operator for the smelter. The second prong is to give extra support to the Highlands and Islands Development Board to help it to extend its activities in advanced factory building, attracting other industry, and in the general activities that it undertakes in the Highlands so that the full effect of the redundancies might be mitigated to some extent.

The hon. Gentleman asked me how the search for a new operator was being conducted. It is being conducted by the Locate in Scotland office, which is based in Glasgow, and which has a network of contacts all over the world. The search is being conducted by LIS in conjunction with HIDB. We are fortunate, as we have a full-time member of HIDB who was a former managing director of the smelter and therefore has direct knowledge and experience of the aluminium business. Therefore, when we say that we are scouring the world to see if another company is interested, we mean just that.

The hon. Gentleman has no right, or any background information, to suggest that the Government's effort is in any way niggardly. The Government are as anxious as anyone else in the House to see if another operator exists. We are also realistic. We insist that it is a long shot. It would be wrong for any of us to build up false hopes in the area. Nevertheless we are taking that long shot and hope that we find a new company.

I now come to the second point that the hon. Gentleman raised. If we find a new company, we are faced with the difficulty of negotiating a new power contract. It would be equally wrong to suggest that one just pushes a button somewhere in the electricity generating boards in Scotland, because the 1968 contract was a disaster. The smelter closed because there was a world recession and it was making losses. However, the greatest single reason for the difficulties facing British Aluminium was the failure of the 1968 contract. I do not make that as a partisan political point.

The Government of the day set up the contract that they thought was best at that time. The company accepted it. It is easy for us to say with the benefit of hindsight that this and that is wrong. Therefore, I make no partisan comment about the contract, but I have to say that the contract failed. In the matter of disputed charges, for example, the contract caused a contingent liability on the balance sheet of the British Aluminium Company amounting to £47 million, which was a great financial embarrassment to the company.

We took the best possible legal advice available to Government, as did the North of Scotland Hydro-Electric Board. The advice that we received—I emphasise this—was that, in view of the terms of the contract, the hydro board had an obligation to the rest of its consumers to pursue the £47 million disputed charges in court. [Interruption.] It may not be in dispute with the hon. Member for Caithness and Sutherland, but it is a matter of which he should be fully aware.

The situation with regard to another power contract is a matter of some complexity. I do not wish on this occasion to try to describe the difficulties that we face, except to say this. The first hurdle, and a significant one, will be to try to find a new operator. I must also make it clear that if such an operator is found, there is a further massive hurdle to be overcome in trying to work out a power contract which will produce a viable operation at Invergordon.

The hon. Gentleman asked about the difference in power costs between the Invergordon project and the Anglesey and Lynemouth projects. As my right hon. Friend said yesterday, the Anglesey and Lynemouth contracts are quite different. The Anglesey contract is with the CEGB on terms which are in fact rather similar to those of the Invergordon contract because it is related to Dungeness B nuclear power station. At the moment it is supplied from the grid, but the company has an interest in Dungeness B as British Aluminium had in Hunterston B, so there is a similar contract there. The Lynemouth contract is a coal contract negotiated separately with the National Coal Board.

In each of those cases, the extent of any subsidy that exists is borne by the general consumer in England and Wales, but in Scotland, the Labour Government in 1968—again in an act of fairness to Scottish consumers—said that as the population of Scotland was only 10 per cent. of that of the United Kingdom it would be too heavy a burden to be met by the consumers there and therefore the central Exchequer would pick up the tab in the event, as it turned out, of the pricing requiring Government funding.

Until the date of the end of the contract, quite apart from the disputed charges, £113 million was paid by the Exchequer to the hydro board to reduce the cost of electricity to the smelter, but even with that, it was unprofitable. By any stretch of the imagination, that is a considerable contribution by central Government and by the taxpayer to the project at Invergordon. Yet even after that, the project failed.

Mr. Maclennan

rose—

Mr. Fletcher

I cannot give way. I think that in this short debate the hon. Gentleman has perhaps made points which will allow him at least to ponder before we have a further debate on Thursday. There is little to be gained from raking over the past. The Government are happy to explain what happened and the events that led up to closure. My right hon. Friend did that yesterday. We can repeat the explanations on Thursday, when there will be more time, and answer questions of that kind during the debate.

However, it is important that hon. Members contributing to the debate understand the facts, which are not simple. It is a difficult and complex matter. It is not enough to say that the Government have been uncaring about the project, and that they were not willing to make an effort to keep the smelter going.

The company had a target date of 18 December, and it ran over that date because my right hon. Friend and I, with our officials, were working beyond that date to see whether there was any way at all in which a deal might be struck which would allow the smelter to continue, in the first instance for three years. But the terms of the 1968 contract did not make that possible. That was the company's opinion. Come the end of December, the company's year ended, and it felt it vital to extricate itself from the 1968 contract in order to ensure that the jobs in other parts of Scotland, not least the jobs in Falkirk, but also jobs in Glasgow, Burntisland, Kinlochleven and Lochaber—2,700 altogether—should be preserved. It was in those circumstances that my right hon. Friend and I were dealing with the problem right up to the end of the year.

I hope that on Thursday, apart from asking any further questions on the history of the case, the House will look to the future—

Mr. Maclennan

That is what the hon. Gentleman is not doing now.

Mr. Fletcher

I hope that by Thursday the hon. Gentleman may have sobered up in this respect and be able to make a constructive contribution to the debate, instead of rising to make silly points of order, which I see the hon. Gentleman is about to do.

Mr. Maclennan

On a point of order, Mr. Deputy Speaker. The Minister's remark is capable of misconstruction if it is reported. The hon. Gentleman has accused me of not being sober. I hope that he will withdraw that accusation.

Mr. Deputy Speaker (Mr. Bernard Weatherill)

I do not think that the Minister quite meant that phrase.

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the standing order.

Adjourned at four minutes to Eleven o'clock.