HC Deb 14 June 1982 vol 25 cc703-10

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

Mr. Frank R. White (Bury and Radcliffe)


Mr. Speaker

Order. I suggest that the hon. Member for Bury and Radcliffe (Mr. White) waits for a moment. I shall time the Adjournment from the moment that I call him.

10.21 pm
Mr. White

I am grateful for the opportunity once again to place before the House the problems of the paper industry, problems which have a potentially serious consequence for my constituency and in particular for the thousands of my constituents who are employed in it.

Bury and Radcliffe has the heaviest concentration of paper mills and associated trades, not only in this country but in Europe. Therefore, our prosperity is very much intertwined with the industry's success and with its problems.

On two previous occasions, as chairman of the all-party paper industry group, I have expressed the concern that we have felt regarding the needs of the industry. In particular, many hon. Members and I have directed the Government's attention to the problems created by high energy costs. On 4 August 1980, speaking in the summer Adjournment debate as reported at c. 85 of the Official Report, I stressed my fears that if positive action were not taken then to combat foreign energy subsidy, the six mills that had closed that year with the loss of 5,000 jobs would soon be followed by more.

I regret to inform the Minister that since that date 14 mills have closed, 46 paper machines have been shut down and over 9,000 paper workers have been made redundant. The kiss of death to which I referred in that debate is eagerly twitching on the lips of our foreign competitors. In the energy debate held on 21 January 1981, Official Report, c. 284, I referred to the Government's response to this continuing problem and criticised the Government's intervention into energy policy in forcing gas prices 10 per cent. higher and electricity prices 5 per cent. higher than the rate of inflation.

In political terms we are led to understand that the Government are reluctant to intervene in the industry, preferring free market forces to apply. Five hundred of my constituents previously employed at Transparent Papers Ltd. would agree with that, because there is a strong possibility that if the Government had kept out they would be in work today. In one year, that decision on gas prices turned a company profit of £1.2 million into a deficit. The gas price increase alone entirely accounted for that loss.

I should be the first to agree that not all the paper industry's problems can be laid at the door of the Department of Energy. Trade dumping and lack of industrial investment incentives certainly play a part. Energy costs, however, are entirely within our own control, and it is beyond the comprehension of the industry that the Government are prepared to allow this key industrial sector to disappear without fighting to support it. The industry seeks a United Kingdom energy policy that places British energy-intensive industries at no disadvantage in comparison with their competitors—no more and no less. How else should we reflect the benefits of our indigenous energy resources? Certainly not by paying dole money to unemployed paper workers.

No doubt the Minister will claim that the Government have tried to act on this problem, and I acknowledge that, but at the same time I label their action a failure—not enough, not in time and in no way effective to the basic problem. The Chancellor's announcement of a gas price freeze was welcome, but the revised electricity charges did not help many companies. Important, too, is the fact that the heavy fuel oil tax remains too high. Indeed, increased derv and petrol prices cancelled out the gas price freeze and it is estimated that, despite the Government action, three-quarters of the paper industry will be worse off than it was before the Government's action on energy prices.

I stress that energy cost is not the only adverse factor affecting the paper industry, but the rapid increase in energy costs is the most important single issue facing the industry. The cost breakdown of a typical board mill shows that between 1976 and 1981 raw material costs fell from 45 per cent. to 42 per cent., labour costs fell from 22 per cent. to 21 per cent., rates remained constant at 5 per cent., other costs rose from 10 per cent. to 18 per cent., and energy costs rose dramatically from 4 per cent. to 18 per cent. of total manufacturing costs—the latter being the principal factor in turning a 4 per cent. profit into a 4 per cent loss. That example is by no means an exaggeration. Moreover, a similar pattern is shown in the cost breakdown of a fine paper mill.

Regrettably, the price of heavy fuel oil in the United Kingdom is still up to 20 per cent. higher than in most EEC countries, due to the £8 per tonne excise duty. Electricity prices remain much higher than in other EEC countries and the disparity grows with every increase. These factors are not figments of the industry's imagination. They are real, and they are supported in the second report of the NEDO energy task force, which confirms that the United Kingdom continues to pay higher energy prices than many of its competitors.

Since October 1979, the industry has had 13 meetings with Ministers, at which unions and management have pressed the urgency of action on energy prices. It is regrettable that the moves made by the Government have been regarded as a minimal sop—a token acceptance of the case with a lack of political will to take the necessary action.

That failure places a burden on the industry and on individual mills, creating investment and employment difficulties. The fact that we continue to have some investment and some semblance of an industry is due to the common sense and co-operation of local management and trade unions.

Should the Minister retain some scepticism about the case that I have made, I quote a letter from Mr. Jeff Morgans, manager of the New Bury paper mill, which is part of the Wiggins Teape group. He says: As you know we have papermaking operations at ten sites throughout the United Kingdom and comparable operations in Europe. We have a full time Energy Manager for our Group who compares energy costs at our different sites and advises our local management on ways of minimising energy costs, so what follows are facts. No account seems to be taken of the continuous even loads that we take from the Electricity Boards. Without these they would be involved in expensive stopping and starting of base load power stations at night. That is the key point, which I emphasise. The letter continues: In comparing this mill in Bury with one of our Belgian mills, on electricity charges alone, we paid £127,000 more last year than if we had purchased electricity at Belgian prices, and that was before the Belgian franc was devalued. It is 3 per cent. of our total manufacturing cost! Put another way it is equivalent to sixteen jobs! The story is the same for other energy sources. Oil at our Belgian mill is 13 per cent. cheaper than at our United Kingdom mills, and gas 17 per cent. cheaper than the United Kingdom. I received confirmation of Mr. Morgans' views regarding the purchase of electricity from the boards in a letter I received from Mr. Common, the managing director of Olives paper mill. He confirms the board's inability to respond to specific requests on this issue. Mr. Hayworth, the chairman of Crompton's paper mill in Bury—a company that has successfully invested in special long fibre papers—confirms tariff increases averaging 21 per cent. on the consumption of electricity, gas and oil over the past year.

Heavy fuel oil, electricity, gas—both interruptible and firm supply—all remain much higher in price than for our international competitors, whose Governments seem to recognise more positively than our Government the benefits of cheap energy to manufacturing industry and to the prosperity of the country.

The Government scheme to encourage conversion from oil to coal is helpful but regarded as a classic Catch 22 scheme. The problem is that companies fighting against the recession and putting what money is available into retaining their market share have little or no chance of financing the conversion balance of 75 per cent. of total cost. The Government might say that it is in the best interests of the company to invest in the efficient use of the correct energy source. We in the industry would not doubt or question that, but merely point out to the Government that many of our competitor countries such as Germany, France and Sweden have recognised that there is a Government role in that objective and have made available huge loans or direct grants for such efficiency measures, again placing United Kingdom mills at a disadvantage.

To summarise, whilst we accept that it is not the sole responsibility of the Department of Energy to revitalise the paper industry, there are specific areas where energy policy could tip the balance our way in surviving or going under. The British paper industry seeks similar treatment from the Government to that received by EEC competitors from their Governments in the area of improving energy use efficiency. The Government must establish a system of funding loans or direct grants. The industry, which is, in the main, a continuous process operation, does not benefit from the electricity load management proposals announced in the Budget. We believe that the tariffs charged to such industries as paper should reflect the benefits that the supply industry gains from a continuous load. I ask the Minister to assure me that he will consider that specific point.

I urge consideration of a further freeze on gas prices, holding the United Kingdom industrial prices to a similar level to that of our Continental competitors. Finally, I ask that interdepartmental discussions be initiated with the Treasury to bring about a freeze or a reduction in the price of heavy fuel oil for our industry.

This is not a question of featherbedding an industry against reality. Management and unions have responded to the present challenge. That has produced many refreshing examples of a willingness to introduce new technology and an important change in attitude towards new practices. These requests are made in the knowledge that the industry believes in its own future. We ask the Government to share in that belief.

The East Lancashire paper mill in my constituency recently opened a £1½ million automated finishing line for the packaging of its products. This was done as an act of faith in itself and its employees. More important, it is an act of faith in the United Kingdom paper industry as the development rivals anything in Europe and signals to our competitors that they have a fight on. The Government must not stay in the wings like a reluctant and blushing rose. They must have a part to play.

The Prime Minister encourages the term "constructive intervention". I leave the Minister with an example that should energise his constructive support. In 1955 Japanese paper mills held a 100 per cent. share of the home market. Our mills held 75 per cent. of our home market. In 1981, despite Japan's consumption and production escalating eight-fold, its mills retained the 100 per cent. holding. Our share of the British home market fell to 51 per cent. It is not our fault. We fear no one on technology or development. If our paper workers had equivalent machines and the Government support that the Japanese have, we could compete with anyone and recapture our market share. The only thing that we fear is the Government's indifference. Our competitors do not suffer similarly. I ask the Minister to persuade his colleagues to support the industry.

10.35 pm
Mr. Robert Litherland (Manchester, Central)

In spite of the news and the scenes that we have just witnessed, I felt it right briefly to support my hon. Friend the Member for Bury and Radcliffe (Mr. White), who has outlined the case with clarity. He is sincerely anxious about the decline in the paper and board industry.

I drew attention to the decline in the book manufacturing industry in a previous Adjournment debate. Individually and collectively the all-party paper group tried to draw the Government's attention to the critical situation. As my hon. Friend said, energy is only one factor.

No one is more aware than my hon. Friend of the disaster that could befall a manufacturing industry if decline is not corrected. In our part of the world we have witnessed the decimation of the textile industry and the consequences for the North-West. The paper manufacturing industry is headed for the same destruction.

I am a sponsored member of the SOGAT print union. I have served my apprenticeship and spent most of my working life in the print trade. I am deeply worried about the effects of the decline not only for the paper manufacturing industry but for associated sectors. In just over two years my union alone has suffered 27,000 redundancies and the number is growing. We had 639 last January and 867 in February. Of the February total, 264 were from central Lancashire. The loss is a tragic waste. The industry can never be the same again. The majority of the people made redundant, especially in the paper manufacturing section, because of the nature of the work, will never be employed in the industry again. The industry was buoyant, with good labour-management relations. The decline, redundancies, waste of human resources and consequent detrimental effect, especially on the North-West, are disgraceful.

I congratulate my hon. Friend on drawing attention to the problem and support his attempt to get the Government to take action. I hope that the Minister will deal with the energy aspect and give us something to take back to our constituents to show that the Government are at least doing something.

The Under-Secretary of State for Energy (Mr. David Mellor)

I am grateful to the hon. Member for Bury and Radcliffe (Mr. White) for raising this subject. I know of his strong personal and constituency commitment to the paper and board industry. He has for some time pressed the case for the industry with great vigour in the House and in private meetings within the Department.

I was glad to receive a deputation from the industry shortly after I took up my responsibilities. I and my colleagues in the Department of Energy and the Department of Industry are always prepared to enter a dialogue with the industry in the hope that we can pinpoint assistance which is possible within the necessary framework of the Government's strategy to get the whole economy moving.

Concern about the industry is common to both sides of the House. I particularly mention the presence tonight of my hon. Friend the Member for Faversham (Mr. Moate), who has been most vigorous in his presentation of the industry's case to the Department and to the House.

I am grateful for the recognition that came from the hon. Member for Bury and Radcliffe—in what was necessarily, from his point of view, a tough speech—of the fact that energy is not the only problem that assails the industry. The industry has several problems, not least the need to compete with countries that have much more ready access to timber and to cheap energy resources of a kind that it would be difficult for any Government, however well intentioned towards the industry, to reproduce in Britain. I speak particularly of access to the cheapest form of electricity—hydroelectric power—in two or three of the major countries in which the paper and board industry flourishes, such as Canada and the United States.

I acknowledge that the past three years have seen an acceleration in energy prices for the second time in a decade, and the consequences of these high energy costs are very properly a matter for public debate. No one, either in the United Kingdom or the rest of the world, has been immune from the rising energy prices which followed the two oil crises of that decade, in 1973 and 1979. I recognise and understand the particular problems which have faced energy-intensive industries such as the paper industry, but I am quite clear that these problems need to be combated, first by rational and competitive pricing of our fuel supplies and secondly by the rational and efficient use of energy by consumers.

In the time available, this is not the occasion on which to go into a lengthy explanation of our approach to energy prices, but that approach was set out, as the hon. Gentleman knows, in some detail in our response to the Select Committee's report on industrial energy pricing. But it is our aim to ensure that the energy market operates as freely as possible, so permitting the most efficient and economic supply and use of fuel.

Subject to the need for the energy utilities to cover their long-term costs of supply, the market mechanism should work so as to allow our energy prices to be as competitive as possible, and we believe that economic pricing which provides the right market signals will help us to reduce our dependence on oil and achieve the most economic balance of energy supply and demand. It should also ensure that large industrial consumers, whose demand results in lower unit costs of supply, should pay prices which reflect those lower costs.

With regard to the hon. Gentleman's point about energy price disparities between the United Kingdom and our overseas competitors, it is certainly true that in March 1981 the NEDO task force reported that for a number of energy-intensive industries price disadvantages existed—in large part due to sterling's depreciation against other European currencies in the second half of 1980. As those disparities became evident, so the Government took steps to help consumers.

In 1980, my right hon. Friend the then Secretary of State for Energy commissioned a review by the Electricity Council of its bulk supply tariff arrangements and asked area boards to ensure that industrial customers benefited as much as possible from flexibility in existing tariffs. The British Gas Corporation relaxed its policy of relating gas prices to the competing oil product.

In the March 1981 Budget, the Government took a substantial step forward in announcing measures worth £118 million, which were implemented by the fuel industries to help large consumers. These included a gas price ceiling and flexibility in electricity pricing arrangements.

We asked the NEDO task force to report again and it did so in November 1981. That report showed that the position on price disparities had improved considerably. There was no general price disadvantage compared with the rest of Europe. Most large gas consumers—those on interruptible contracts, which is principally the position of gas users within the paper and board industry—were enjoying a price advantage.

Over 90 per cent. of gas supplies to the paper and board industry are on interruptible terms. It is important to recognise that even the latest figures show that that advantage is continuing in relation to our European competitors. Electricity prices were closely comparable with those elsewhere in Europe in general, but with two principal exceptions, France and West Germany.

It is worth considering the reasons that the task force gave for the improved United Kingdom position. Energy prices in the United Kingdom had generally been lower during 1981 than on the Continent. The measures taken in the Budget had had their effect and, in contrast to the previous task force report, sterling had depreciated against European currencies. Of course, that reveals the difficulties of comparing energy prices at any given moment wth Continental opposition, because exchange rate fluctuations can lead to comparisons that can be misleading. The matter has to be considered over a longer period.

I assure the hon. Gentleman that it is the Government's determination that United Kingdom energy prices should be as competitive as possible. That is reflected in the measures which we have continued to take since the November 1981 report to try to help energy-intensive industries. In the Budget of March this year, my right hon. and learned Friend the Chancellor of the Exchequer announced help of over £150 million for industrial energy users. That included new contracted consumer load arrangements for the largest electricity consumers, which should produce price reductions of up to 16 per cent. for over 100 industrial firms. I am pleased to say that, although the names of the companies must be a matter of commercial confidentiality, about half a dozen undertakings in the paper and board industry have benefited from those electricity measures.

It was also announced—the hon. Gentleman paid tribute to the fact—that British Gas would freeze the price of contracted gas supplies until the end of 1982. That meant that, for the two years 1981 and 1982 taken together, the total increase to industrial consumers of gas would be about 3 per cent. to 4 per cent. That was warmly welcomed by the industry, as it was welcomed by the hon. Gentleman. Together with the 1981 measures, it means that industry in general has benefited by over £250 million, compared with what it would have paid if the Government had not taken action. Gas accounts for more than 20 per cent. of the energy costs of the industry. So the freeze has been of material benefit.

I want to mention also the £50 million coal-fired boiler scheme. The hon. Gentleman was somewhat more pessimistic about it than some of our indicators would perhaps justify. Although it is true that some companies cannot invest as much as they would like—I sympathise with that fact in the present financial pressures—several paper and board companies are now taking advantage of and applying for grants under the scheme. There have been applications for substantial projects worth several millions of pounds. Again, I cannot give examples, but I can say that there is a project from one British paper firm that is worth £7.7 million, which has already been accepted for a grant of probably 25 per cent. of that amount. So there is evidence that the scheme is beginning to assist the paper and board industry, as it is other industries.

The hon. Gentleman mentioned heavy fuel oil. I think that he knows why my right hon. Friend was not in a position to make the reduction. It is a matter that goes back years and is not due to this Government. It is a difficult matter, and I shall not take up the time of the House in going into the details. However, I will say that, although the level of duty remains higher than in most European countries, it has not been increased recently. I think that the "in" word is revalorisation. It is a crude term, but I think we know what it means. It is worth noting that, in real terms, because it has not been revalorised, the duty has fallen by over 20 per cent. since the 1980 Budget.

The hon. Gentleman also referred to the duty on derv. There is already a considerable differential in favour of derv as between the petrol and derv duties which were introduced as a result of legitimate pressure by hon. Members during the passage of the 1981 Finance Bill. The Government recognise that at least the maintenance of that differential is of assistance to industry and commerce. For that reason my right hon. and learned Friend the Chancellor of the Exchequer decided to limit the rises in both duties in the 1982 Budget so as only to compensate for inflation. The differential is now 10p.

Although I have concentrated on the European Community, the competition for this industry lies to a large extent elsewhere, particularly in Scandinavia and North America. It is a matter of regret that no one standing at the Dispatch Box could say other, when dealing with Scandinavia and North America, than that we simply cannot match the energy prices charged there.

Of course, we are fortunate in our indigenous energy resources. They enable us to enjoy a security of energy supply that is the envy of many other countries. However, the crucial difference between Britain and Canada and Scandinavia, with their great quantities of hydro-electric power, is that our resources cannot be won so cheaply. That must remain the difference between us. We have a great deal of coal, but, compared to countries where the coal can be open cast mined, the mining of British coal is inevitably much more expensive. I do not need to mention that to those hon. Members with a particular interest in the mining industry. That must have an effect. Adequate resources is not the only issue.

In conclusion, I want to say a word about the more efficient use of energy. As the Minister responsible for energy conservation, I attach particular importance to o energy-intensive industries coming to terms—

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 nine minutes to Eleven o'clock.