HC Deb 20 July 1988 vol 137 cc1261-8

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

2.10 am
Dr. Jeremy Bray (Motherwell, South)

We debated the future of Ravenscraig yesterday in the Scottish Grand Committee during the debate on industry in Scotland. The Under-Secretary of State has had an opportunity to read what my right hon. and hon. Friends and I said, and I have given him notice of further questions. If I take less than my allotted time, I hope that he will allow hon. Members to ask any further questions that might arise.

The impromptu statement, a fortnight ago, by Sir Robert Scholey that the closure of the hot mill at Ravenscraig in 1989 is "probable rather than possible" caused great concern in Scotland. The position has not been substantially changed by his letter to the Secretary of State for Scotland which he read to the Scottish Grand Committee yesterday—in which he said: With the further strengthening of market conditions since December 1987, there is no reason for the Corporation at present to make plans to close the Ravenscraig strip mill. Sir Robert Scholey did not spell out the details of production. plant loading and capacities since December 1987; I gave them in my speech in the Scottish Grand Committee. While hot-rolled coil production has been at 100 per cent. of manned capacity, and the Port Talbot hot mill has been working 21 shifts, the hot mills at Llanwern, Lackenby, and Ravenscraig have been working 15 shifts. If Llanwern and Lackenby increased to 21 shifts, on a strict pro rata basis, the production could have been achieved by loading the other mills at 99 per cent. of installed capacity and closing the Ravenscraig hot mill.

This allows nothing for the more difficult rolling programme at Ravenscraig, with electrical steels and small batches, and the loss of maintenance time on non-production shifts. The savings offered by the closure of the Ravenscraig hot mill would be minimal, as extra shifts would be required at Llanwern and Lackenby to replace those laid off at Ravenscraig. In practice, these circumstances justify the retention of the hot mill.

On the most generous interpretation, Sir Robert is saying in his letter that as long as those circumstances prevail there is no reason for British Steel to close the Ravenscraig hot mill. Amen. However, a temporary dip in the market, or the need for further investment in modernisation or major maintenance, would change the picture. British Steel has not changed its long-term view that there is one strip mill too many, or it would be announcing longer-term investment at Ravenscraig.

British Steel strip capacity is certainly still unbalanced. Continuous casting is the bottleneck. There is unused liquid steel capacity upstream, and unused rolling mill capacity downstream. There are minimal savings for British Steel in closing the Ravenscraig hot mill, but by closing it—I hope the Under-Secretary of State will note this—British Steel would ensure that when it had completed the continuous casting at Port Talbot and Llanwern there would not be a finishing mill which could take Ravenscraig's slabs, and the whole of Ravenscraig would be closed whatever the level of demand.

I repeat what I said in the Scottish Grand Committee: British Steel has a clear interest, with the degree of private monopoly power that it is being given as the sole United Kingdom bulk steel producer, in restricting capacity and forcing up prices to the limit of what more distant European competition will allow, which is flatly contrary to the national interest in efficient competitive production.

It is up to the Government to act. I warned the Government yesterday of the consequences if they do not. Ministers will reflect on the effect on potential investors in British Steel of an unresolved industrial dispute going to the heart of the company's strategy. If at any stage British Steel wanted to close the Ravenscraig hot mill in pursuit of its restrictive strategy, while urgently requiring the rest of the works for some years until its capacity can be replaced elsewhere, British Steel would be vulnerable to industrial action only within Ravenscraig. Steel workers would act only if they knew they had the support of public opinion in Scotland and beyond, and if they knew they were acting in defence of the competitive steel industry that the country requires. During such a strike, British Steel would lose profits at a rate of £60 million a year, which would increase permanently to 160 million if it closed Ravenscraig prematurely and lost market share, as it did in 1980.

My guess is that, on reflection, British Steel will go ahead with the installation of continuous casting at Port Talbot and Llanwern and leave Ravenscraig intact, with the thought that it could eventually be closed in one piece. That, however, is not acceptable. British Steel needs further development both in new technology and in market share in Europe if manufacturing industry and the economy generally is to prosper. The current deficit in the balance of payments is ample evidence of that. Ravenscraig has a key role to play in the steel industry of the future that the country needs.

Whether by selling Ravenscraig and its finishing mills as a separate entity, by restrictions from non-competitive behaviour under United Kingdom or European Community oversight, or in some other way, the Government must act if they are to avoid a major miscalculation—of which they have been warned—about the future of British Steel, and about Ravenscraig in particular.

Why does the recent report by Warburg Securities, the broker advising the Government on British Steel, give no information about present capacities and outputs, let alone planned future capacities and investment requirements? Is that not relevant to expected profits? It even manages to leave Ravenscraig out as a supplier of steel to Shotton, although it is the principal supplier. Warburg told me that it was dependent on what British Steel and the Government told it. It does not seem able even to read the publications of the International Iron and Steel Institute. So much for informing the stock market of what the Government are offering.

Why does the claim to £1,870 million tax losses in the British Steel annual report make no reference to the fact that the taxpayer met those losses by payments to British Steel under section 18 of the Iron and Steel Act 1982? Will not the Secretary of State use his powers under the British Steel Bill to prevent those losses being transferred to the successor company? It was one thing while the corporation could be required to pay dividends to the Secretary of State on public dividend capital; it is quite another for British Steel plc, once privatised, to pay dividends to private shareholders, being exempt from payment of corporation tax by virtue of tax losses which the Exchequer has already met by payments under section 18. That is outrageous behaviour by the Government.

Why have neither the Government, British Steel, nor any of their numerous agents said anything about the writ from the West German Iron and Steel Association before the European Court of Justice, lodged a fortnight ago, complaining about £900 million of unauthorised state aid having been given to British Steel? Are these facts not relevant to the privatisation of the steel industry?

Mr. Peter Sutherland, the member of the European Commission for competition policy, has said that the Commission will have to monitor closely the implementation of the various stages of the privatisation process before full clearance can be given. I shall make sure that the emerging British Steel strategy, which is restrictive and a grave threat to Ravenscraig, is drawn fully to his attention, but it would be more sensible for the Government to act first.

2.19 am
Dr. John Reid (Motherwell, North)

I am grateful to my hon. Friend the Member for Motherwell, South (Dr. Bray) for tailoring his speech to allow me to make a brief contribution. He speaks with great passion and knowledge on this matter. I shall confine myself to three points.

First, does the Minister appreciate that his handling of the future of the hot-strip mill has caused grave damage to whatever trust was left between the Government and those interested in maintaining the hot-strip mill and the Ravenscraig plant? As I have said before, there appears to have been suppression of information. It is quite incorrect for the Prime Minister, the Chancellor of the Duchy of Lancaster and other Ministers to say that what Sir Robert Scholey said two weeks ago is exactly what they have said all along. That is not the case. Sir Robert is on record as advising us that he told the Government as far back as 3 December of the probable closure of the hot-strip mill. Despite persistent questioning in the House and elsewhere, information was intentionally suppressed and that has done even more damage to trust in the Government's intentions.

My second point is on the letter about which my hon. Friend the Member for Motherwell, South spoke in some detail. That letter was released yesterday by the Secretary of State for Scotland, having recently been received from Sir Robert Scholey. In certain quarters in Scotland there is a belief that that represents a reprieve for Ravenscraig and its hot-strip mill. That feeling is a direct result of the nature of the publicity given to that letter; publicity that was directed and to some extent orchestrated by the Government.

We say that nothing has changed as a result of the letter. It opens with the words, "I thought it would be helpful". If it is helpful to anybody, the only one to whom it can be helpful is the Secretary of State for Scotland, because it appears that the letter has no purpose other than to preserve the illusion that no decisions will be taken about Ravenscraig until after it passes out of public control. That illusion has been intentionally created so that Ministers can say, "We regret it very much, but there is nothing that we can do because it is now in the private sector."

That brings me to my third point. Government strategy is not only an abandonment of responsibility by Ministers, but in the long run can lead to worse trouble, not only for Ravenscraig, but for the whole of British Steel. I say that because over the past few years the work force and those who support Ravenscraig have been extremely careful to exert pressure only through politicians, public vehicles of protest or campaigns. They have done that because Ravenscraig is in the public sector.

The work force has maintained a high level of productivity and has eschewed industrial action that could damage either British Steel or the Ravenscraig plant. If the Government continue their present strategy, which appears to be to push all decisions aside until after the plant is out of the public domain so that they can then wash their hands of it, they will leave people with no alternative—since they have pushed the matter back purely into the industrial sphere—but to consider some form of industrial action. I say that, not as a threat or on the basis of any direct line to anyone or with any secrets, but as an appreciation of how people are beginning to perceive this matter.

If industrial action took place, it would be dangerous for Government Ministers and for Ravenscraig and the communities that we represent. It would also be dangerous for the whole of British Steel. Even at this late stage I ask the Government to pay attention to the matter and to the issues raised by my hon. Friend the Member for Motherwell, South. It is not impossible to resolve the difficulties. If we are to do that, we must eschew the tactics of the political fig leaf of vague communications and letters of intent. We must get down to the real problem, which is how to preserve a healthy, profitable and productive steel industry in Scotland, revolving around an integrated Ravenscraig plant.

2.22 am
The Parliamentary Under-Secretary of State for Industry (Mr. Robert Atkins)

I have listened with great interest to the points raised by the hon. Members for Motherwell, South (Dr. Bray) and for Motherwell, North (Dr. Reid) who, on many occasions in the House and in Committee, have expressed their concern about Ravenscraig. The future of the Ravenscraig steelworks is obviously a matter of great importance. Therefore, I am delighted that my hon. Friend the Minister of State, Scottish Office, has, at this late hour, and although he is not answering the debate, seen fit to be present. I am grateful to my hon. Friend and I hope that the House appreciates his presence.

The position on the future of Ravenscraig is, however, wholly clear, and has been clear since December. By now hon. Members will be very familiar with the terms of the statement made by the chairman of British Steel on 3 December 1987 and conveyed to the House by my right hon. and learned Friend the Chancellor of the Duchy of Lancaster. That statement seems quite unambiguous to me. My right hon. and learned Friend, when answering questions on his statement in the House, stated: As to the future of the strip mill, it is not possible to look beyond 1989 at the moment. Nobody is saying that it will close; we are saying that at the moment British Steel faces a serious problem with excess capacity. As a result, it is under-utilising all its strip mills, which is damaging efficiency and cannot go on indefinitely unless the market improves. Against that background, it is good news that the corporation has decided that the right commercial course is to keep them all going until at least 1989. It will then have to decide whether the position has improved and what it intends to do."—[Official Report, 3 December 1987; Vol. 123, c. 1114.] There is no question of the nature of the position having been concealed. I am tempted to agree with the hon. Member for Motherwell, North, who said that nothing has changed, because nothing has changed since my right hon. and learned Friend made his statement to the House. The chairman of BSC has given no evidence to the Government suggesting otherwise. His review of 23 June 1988 in the corporation's latest annual report and accounts makes specific reference to the 3 December statement.

Furthermore, Sir Robert Scholey has recently written to my right hon. and learned Friend the Secretary of State for Scotland, as he informed the Scottish Grand Committee yesterday, reaffirming the December 1987 statement, and adding that, with the further strengthening of market conditions since then, there is no reason for the corporation, at present, to make plans to close the Ravenscraig strip mill. In his recent interviews, and subsequently in his letter to my right hon. and learned Friend the Secretary of State for Scotland, Sir Robert freely acknowledged BSC's dependence on the Ravenscraig steel-making plant, stating that British Steel has valuable assets in the Ravenscraig works for which it has a continuing need.

The position then is absolutely clear. British Steel continues to require Ravenscraig's steel-making capacity. No decision has been made to close any mill. The corporation will, however, need to keep the position under review in the light of market circumstances from time to time. I accept that this may not fully meet the concerns of those in Scotland who remain anxious about the future of Ravenscraig's strip mill, hut I fear that in the commercial world in which any company operates the future will always contain uncertainties. British Steel has gone as far as it can go to provide reassurances in the face of that uncertainty, but it is simply a commercial fact of life that it can go no further.

The British Steel Corporation remains fully committed to the successful operation of its Scottish plants for as long as there is a market need for their production. This is shown in the investment directed towards the plants. In 1987–88 alone, for example, British Steel invested about £20 million in the Ravenscraig complex. Of this, fully £2.6 million was spent on improving facilities at the hot-strip mill. This scarcely seems to constitute evidence of a plot to run down or abandon the Ravenscraig works, but rather the reverse. Indeed, even the Arthur Young report found that there was no need for further substantial investment in Ravenscraig in the next few years.

I should like to consider the particular points that the hon. Member for Motherwell, South raised about which, as we expected, he has given us as much notice as possible. The hon. Gentleman made reference to the Warburg Securities research circular on investment at Ravenscraig. That report, entitled "Winning the Battle for Efficiency", appeared earlier this month. I stress that that document was produced independently of British Steel and the Government—the hon. Gentleman also made reference to that—and that its contents, including opinions and projections, are entirely the responsibility of Warburg Securities. Therefore, I do not want to debate the detailed content of that report with the hon. Gentleman. However, I appreciate the hon. Gentleman's concern that the circular makes no direct reference to future investment at Ravenscraig. The Warburg document deals with future investment only in general terms, mentioning in passing only the most substantial likely future investment projects. Final decisions on these projects will be for the management of British Steel. As I have already mentioned, the Arthur Young report made it clear that there was no need for substantial investment in Ravenscraig in the next few years, so I do not find it surprising that the Warburg document made no reference to any such investment. There is nothing in any way sinister in that omission.

The hon. Gentleman referred to tax losses. British Steel's latest accounts show that the corporation has at present £1,870 million of accumulated tax losses. He may recall that the subject of tax losses was debated in Committee during the passage of the British Steel Bill. My hon. Friend the Minister of State, Scottish Office, explained in that debate that the provisions of clause 11(3) provided the Secretary of State with powers to direct, before privatisation, that the tax losses of British Steel shall be reduced by such an amount as he specifies. My hon. Friend said: That power of direction is necessary to allow the Secretary of State to effect some reduction of tax losses inherited by the successor company to take account of the capital restructuring provided for in the Bill. The purpose of the direction is to ensure that the company is not placed in an unduly favourable tax position. To the extent that the Secretary of State directs that the inherited tax losses be reduced, the successor company will pay more tax than the corporation would have done had vesting and the associated arrangements not taken place."—[Official Report, Standing Committee D, 21 April 1988; c. 718.] Decisions have not yet been taken on the extent of any reduction in British Steel's tax losses, and I can do no mu re than note what the hon. Gentleman said.

The hon. Gentleman raised the German Iron and Steel Confederation's allegations that the BSC received more aid between 1980 and 1985 than was necessary for its restructuring programme, and more aid than was authorised by the Commission. We are convinced that there is no substance in those allegations. The European Commission has already firmly rebutted the first allegation, and we are confident that it will equally rebut the second. The facts are that the Commission approved the aid given to the BSC as part of the corporation's major restructuring programme. The BSC has received no Government subsidies since 1985, and all aid paid to the BSC by the Government before that date was approved by the Commission.

Dr. Bray

Do the two not interact, in that the tax losses allowed to the successor company would be construed as state aid if they were in any way over-generous?

Mr. Atkins

The hon. Gentleman will recall that we discussed this at length in Committee and came to the general conclusion that, while there may have been a difference of opinion on the style and method of what we sought, there was agreement. that no state aids were involved. It seems, from the good support given by the Commission, that it does not believe that the Government or the BSC have transgressed. We, the BSC and, it appears, the Commission believe that the German case is unfounded, so we shall rebut that claim. While it is a concern that it should exist, we have no doubt that this will eventually come out right.

I fully appreciate the strength of and the reasons for the concern felt by those most involved with Ravenscraig. But I do not feel that the concern can be met by artificial restrictions on British Steel as it returns to the private sector, or by proceeding to privatisation with a different configuration from that proposed. British Steel has given as full a statement of its expectations about the future of Ravenscraig and its strip mill as the uncertainties of the market place will allow. Subject to market conditions, it expects to require Ravenscraig's steelmaking and continuous casting into the mid-1990s. The hot-strip mill will stay open at least until next year, and British Steel has recently reiterated that it sees no reason to make any plans for its closure at present. There can be no unconditional guarantees in the commercial world. British Steel has given its clear and honest expectation. No more can reasonably be expected.

Dr. Bray

Before the Under-Secretary of State sits down, I wonder whether he could deal with the main issue, to which he has not responded. British Steel, as a private monopoly bulk steel producer in the United Kingdom, has a clear interest in restricting capacity and forcing up prices to the limit of what more distant European competition will allow. To correct that bias in its market power requires some action from the Government, which could take many forms. We propose the competitive structure, with Ravenscraig and its finishing mills being a separate entity, but a reference could be made to the Monopolies and Mergers Commission, or some action could be taken by the European Community, because of competition. If the Government simply leave the position with British Steel able to exercise a monopoly power, contrary to the interests of the workers and the needs of steel customers in this country, they must accept the consequences that will follow. Is there nothing that the Under-Secretary of State can say about that?

Mr. Atkins

I had sat down, but because of the courtesy with which the hon. Gentleman has approached this matter, I shall try to answer his question. We have always made it clear that we do not believe that there is a monopoly. We have suggested that a substantial amount of steel is being imported into this country, so there is not a monopoly. Therefore, we do not accept the premise on which the hon. Gentleman puts his case.

Question put and agreed to.

Adjourned accordingly at twenty-four minutes to Three o'clock.