§ 4.8 p.m.
§ LORD DRUMALBYNMy Lords, it may be for the convenience of the House if I now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Trade and Industry. The Statement is as follows:
" With permission, Mr. Speaker, I will make a Statement on steel. I must apologise for the length of the Statement.
" A further important stage has been reached in the consideration being given by the Government to the future of the industry in consultation with the British Steel Corporation and other interested parties. Having on April 27 announced our conclusions about the maintenance as an integral part of the B.S.C. of the bulk iron and steel making activities, I am to-day able to deal with the short-term financial and investment prospects and the objectives for re-structuring the industry upon a more logical and efficient basis. In due course I look forward to completing this series of announcements when the longer-term plans for the industry have been appraised and agreed.
" Secondly, after nearly breaking even last year, the prospects of the industry for the current financial year involve a loss after depreciation of some £100 million. However, I have decided that, nevertheless, the investment needs of the industry make it necessary for me to authorise the B.S.C. to proceed with capital expenditure this year at a level of £225 million at 1970/71 prices—that is some £40 million more than the total authorised last autmun. This level of investment allows the B.S.C. to proceed with all the various projects it had decided upon, including expansion at Ravenscraig and Llanwern, but does not prejudge the results of the long-term review now in progress.
" The combination of the loss and the higher level of capital expenditure has implications of a major kind to financing needs. I have accordingly agreed that the B.S.C. may increase their net borrowings to a level of £300 37 million this year, and a draft Order has been laid before the House to increase the Corporation's borrowing limits from the present £500 million to the full £650 million provided in Section 3 of the Iron and Steel Act 1969.
" The anticipated loss makes the setting of a statutory financial target difficult, but the Corporation have agreed with me that, subject to major and unpredictable eventualities, they will work within the loss levels and borrowing limits agreed. Arrangements are being made for quarterly reports.
" The need to move into profitability is recognised by both Government and B.S.C. As regards prices for the B.S.C.'s products, the Corporation wish, in future, to be more selective in their price changes, dealing with their products individually rather than upon an across-the-board basis. I am in favour of such a change in practice, which will still be subject to the normal procedures involving the I.S.C.C. and informal consultation with the Government.
" My honourable friend the Minister for Industry has been engaged with the B.S.C. and other interested parties in extensive discussions concerning the future structure of the industry. A broad measure of agreement has been reached between all concerned in four fields of restructuring.
" First, in the boundary area between B.S.C. and private industry agreement in principle has been reached between the Corporation and Firth Brown, Ltd., as to the initial steps necessary to rationalise their overlapping interests. Further steps are currently in negotiation to strengthen the Sheffield steel industry.
" Secondly, the Corporation fully recognise the need to find a solution to the problems of private sector re-rollers and others who are substantially dependent upon the Corporation for supplies of billets while at the same time competing with them in finished products. B.S.C. are prepared to open discussion with interested parties with a view to the creation of one or two new jointly-owned steel and billet-making companies. In addition, the B.S.C. have told G.K.N. of their preparedness to discuss the future ownership of the Brymbo Steel Works, which makes high 38 quality billets. Moreover, the Corporation have agreed to discuss with private interests whether further action may still be required to ensure adequate independent supplies and fair competition, particularly for higher grade billets.
" Thirdly, major parts of the B.S.C.'s constructional engineering and chemicals divisions are to be established by the Corporation as Companies Acts Companies with a view to the introduction of private capital by direct subscription or as a result of mergers. Action upon broadly similar lines will be taken in the field of wire making, to create a really strong ' wire' group capable of holding its own in foreign competition. Similarly, the B.S.C. have agreed to establish a company with Companies Acts status, to hold its B.S.C. stake in all the various joint public/private steel companies, into which it is intended that private capital will be introduced.
" Fourthly, the B.S.C. see industrial advantage in disposing of a certain number of peripheral interests at a fair price: these include their bright-bar, stamping, tool and tool-steel making, a small engineering works, some industrialised housing and certain of their brick-making operations.
" Finally, I have appointed two new part-time members to the Board of the Corporation with effect from July: Sir Matthew Stevenson and Mr. R. Bateman. In addition, Sir David Barran has accepted an invitation to serve with effect from the beginning of next year. I am discussing with the Chairman what additional Board members would be appropriate.
" These measures, together with the long-term study of the B.S.C.'s future development, represent important progress towards establishing the foundations for a much strengthened and profitable British steel industry. There are great opportunities ahead for the Corporation and for the industry as a whole and I am confident that, among both men and management, there is every determination to make the most of them."
§ 4.13 p.m.
§ LORD DELACOURT-SMITHMy Lords, your Lordships' House will be 39 grateful to the noble Lord for having repeated this long-awaited Statement. It is one which we shall need to study and to digest, but perhaps I might ask the noble Lord one or two questions arising from it. In the reference to the selectivity in price changes there was also a reference to these price changes continuing to be subject to the normal procedures involving I.S.C.C. and informal consultation with the Government. I hope that the noble Lord can assure us that this precludes some of the somewhat arbitrary decisions in this field which have been taken by the Government in recent months.
In respect of the restructuring, with the various aspects of which the Statement dealt, there is a reference to "a broad measure of agreement having been reached". I hope again that the noble Lord can assure us that the restructuring proposals are fully acceptable to the British Steel Corporation, and are accepted by them as in the long-term interests of the Corporation and the industry.
Lastly, my Lords, in so far as in the fields of constructional engineering and chemicals there is to be a measure of partnership between the British Steel Corporation and private interests, is it intended that, as a general principle, the Corporation should maintain a majority interest in these joint ventures, or is the public interest to be safeguarded in some other way? I should be grateful if the noble Lord could touch on these points.
§ LORD BYERSMy Lords, in thanking the noble Lord for repeating this Statement, may I ask him whether he can tell the House what is likely to be the outcome financially when the appropriate steps have been implemented? When, for instance, is the profit position expected to arise; and when can we anticipate a reduction in the high level of indebtedness which has now been achieved?
§ LORD DOUGLASS OF CLEVELANDMy Lords, the noble Lord mentioned more selective pricing systems. The pricing system, as I understood it, was selective as regards different materials—plates, rails, sheet, flat rolled product—that could move in accordance with the requirements of those products. If there is to be a more selective pricing system, 40 is it to be between individual works, or what does it mean?
§ LORD DRUMALBYNMy Lords, I am obliged to noble Lords for accepting this Statement and I quite agree that it will take some digesting. The noble Lord, Lord Delacourt-Smith, asked whether consultation on price in the future would preclude what he called the "somewhat arbitrary decisions" that have been reached in the past. So far as responsibility for price is concerned, this will, of course, remain the same as in the past. It always has been recognised that the Government have a special position in regard to pricing in nationalised industries; but I should perhaps make plain that one of the effects of setting up the joint companies will be to withdraw those sectors from this kind of consultation with the Secretary of State, or of the same kind of consultation in future. This represents a real measure of Government disengagement.
So far as the broad measure of agreement is concerned, I can only say that the British Steel Corporation were fully associated with the review in all its stages and were parties to the conclusions of the Steering Group on which the Government's decision was based. As to chemicals and constructional engineering, the extent to which private investment will be forthcoming in these enterprises is of course rather for the future, and I think it would be premature at the moment to go further than I have done in what I have said to-day.
The noble Lord, Lord Byers, asked when the profit position would be improved. I have indicated what are the limits of loss—perhaps an unusual concept—in the coming year; but I have also made it clear, I think, that both the Government and the B.S.C. fully recognise the need to restore profitability at the earliest possible moment, and certainly it is intended that a substantial step towards that end will be made in the following year. On the subject of pricing I speak with some reservation, but my understanding is that pricing is as between products rather than as between different establishments of the B.S.C.
§ 4.20 p.m.
§ THE EARL OF LAUDERDALEMy Lords, may I ask the noble Lord three questions? First, whether the approval 41 for the Ravenscraig development includes, or carries with it, approval for the new bulk ore terminal at Hunterston on the Clyde? Second, whether we can expect no later than the end of the year the final decisions on the allocation of resources to bulk steel production on maritime sites and their selection? Third, whether we are to deduce from what the noble Lord has said about the various sides of the industry now in the new arrangement that the Government are beginning to think in the direction of a kind of B.P.-type solution for the future structure, financial and constitutional, of the B.S.C.?
§ LORD DRUMALBYNMy Lords, on the first point, the further Ravenscraig development is the final stage of the provision of hot rolled coil, and has no particular connotations. It does not indicate anything further than what I have said. It stands on its own. I was not quite clear what my noble friend meant by his second question. I do not think he should read into what has been said more than what in fact has been said. The same applies to the B.P.-type solution. My right honourable friend made it clear at the time when the last Statement was made (I think on April 27) that the bulk steel production provision would remain with the B.S.C., at any rate for the time being.
§ THE EARL OF LAUDERDALEMy Lords, to clear up one point, may we assume that the decision on the long-term investment programme of B.S.C. will not be delayed longer than the end of the current year?
§ LORD DRUMALBYNMy Lords, this phase is at present being examined, and it is hoped that this autumn it will be possible to make an announcement.
§ LORD POPPLEWELLMy Lords, can the noble Lord indicate how the disposal value will be arrived at? Will it be by value of plant, by free play in the open market for bidders? What is the basis in mind for arriving at the disposal value of these units?
§ LORD DRUMALBYNMy Lords, that is entirely a matter for the British Steel Corporation. The Statement I have repeated makes clear that B.S.C. will not dispose of these assets except on a basis that they consider to be satisfactory.
§ LORD PARGITERMy Lords, may I ask whether or not the trade unions have been consulted in regard to these altered arrangements?
§ LORD DRUMALBYNMy Lords, my honourable friend the Minister for Industry saw the trade unions this morning, and I believe he is going to see them again in the very near future.
§ LORD PARGITERMy Lords, I take it that does not mean consultation; it means that they were told.
§ LORD DRUMALBYNMy Lords, the consultation on this matter has been between the British Steel Corporation and the Government.
§ LORD SHINWELLMy Lords, I understood the noble Lord, Lord Drumalbyn, to say (and he will correct me if I am wrong) that the B.S.C. sustained a loss last year of £100 million. That is a substantial loss. Can he explain the cause of this huge loss? Was it due in any part to disposing of any of the products at uneconomic prices—in other words, subsidising other industries at the expense of the B.S.C.? Is that one of the causes, or is it attributable to excessive rates of pay to those employed? Was it caused by inefficient management? What was the cause of such a substantial loss?
§ LORD DRUMALBYNMy Lords, the answer to the noble Lord would be long and complex, but perhaps he misunderstood what I said. I said that in the past year the B.S.C. just failed to break even. There was an anticipated loss of some £10 million. It is for the current year that a loss of £100 million is expected. The reasons are many and complex, not least the state of the market at the present time and the need for investment, for which the Statement I have made makes a start.
§ LORD BLYTONMy Lords, can the noble Lord say how much of this anticipated loss was due to the refusal of the Government to allow the increase in steel prices when the Corporation asked for it?
§ LORD DRUMALBYNMy Lords, naturally this plays a part quite a big part—though perhaps not quite so large a part as was estimated at some time because of the state of the market. Noble Lords will appreciate that at a time when the Government are trying to keep prices 43 down it is not altogether illogical to seek to maintain prices, to restrict the increase in prices in steel, a material that goes into so much of our production and, therefore, affects our prices to such a large extent.
§ LORD BLYTONMy Lords, if the noble Lord is correct when he says that the ambition of the Government is to keep prices down, with the exception of steel, could he tell me in what field they are trying to do this?
§ LORD DRUMALBYNMy Lords, it is the constant endeavour of the Government, in those fields in which they have influence, to try to make certain that prices do not increase more than is necessary.
§ LORD DAVIES OF LEEKMy Lords, it is very difficult to take in such a vast Statement, and consequently it is difficult to put cogent supplementary questions. May we have the opportunity, if it is only for an hour or two, of a short discussion on this Statement? Will the usual channels be used to see if time can be devoted to it? Whatever politics we may have on each side of the House, it is now getting antiquated for each political Party at every General Election to scream at each other and say, "When we get into power next we are going to denationalise that", or, "We are going to nationalise that". Are there not some industries that are so vast that they are too big altogether for private enterprise and for liquidity? At difficult transitional periods do they not have to come to the State; and, because of that, should not the people own them?
§ LORD DRUMALBYNMy Lords, the noble Lord's last question raises a very wide issue indeed. It would not be proper to debate that, or even go very far into it, at this stage. I recognise that this is a complicated Statement and there would have to be discussion through the usual channels as to whether there could be time for discussion on the matter in your Lordships' House. Your Lordships will bear in mind, however, that at this time of the year there is strong pressure on the time of the House.
§ LORD DELACOURT-SMITHMy Lords, I wonder whether the noble Lord would be good enough to clarify an 44 answer which he gave to an earlier question of mine. Did I understand him to say that in the case of the companies in the field of constructional engineering and chemicals which would be established under the Companies Act by the British Steel Corporation, with the prospect of private participation, there would be complete freedom of pricing by those companies? Am I right in saying that there would be no control and no consultation?
§ LORD DRUMALBYNMy Lords, that is my understanding of the position.
§ THE EARL OF LAUDERDALEMy Lords, may I come back to my Ravenscraig point? Are we to understand that the projected Hunterston ore terminal to supply Ravenscraig either was not included in the programme now approved or has been excluded from it?
§ LORD DRUMALBYNMy Lords, I think the answer is "both".
§ LORD ALPORTMy Lords, may I ask my noble friend how the very considerable investment which B.S.C. are going to take on during this forthcoming year is going to be financed?
§ LORD DRUMALBYNMy Lords, by borrowing. I referred in my Statement to the fact that the borrowing limit for this year is fixed at £300 million.
§ LORD POPPLEWELLMy Lords, in view of the fact that the Government kept its funds down, will the Government assist the Steel Corporation to meet its obligations at the end of the year?
§ LORD DRUMALBYNMy Lords, I apologise; I did not catch that question.
§ LORD POPPLEWELLMy Lords, in view of the fact that the Government have kept the price of steel down, which will be a large contributory factor in the Corporation's being unable to pay its way—I refer to the forecast of £100 million loss—and that the Corporation was acting under Government instructions, will the Government reimburse the Corporation by the amount it would otherwise have received?
§ LORD DRUMALBYNMy Lords, I do not quite know what the noble Lord is suggesting here. The money has to come from somewhere, and of course it is borrowed from the Government.
§ LORD POPPLEWELLMy Lords, may I put the question in another way? In view of the fact that the Government have deliberately refused to allow the Steel Corporation to put up its prices in order to meet current expenses, and it is now visualised, by virtue of that action, that the Steel Corporation will have a loss of something like £100 million, is it the Government's intention to reimburse the Steel Corporation by the amount the Corporation should have received if it had been allowed to charge the price it wanted to charge?
§ LORD DRUMALBYNMy Lords, the noble Lord must be aware that Governments, both past and present, have restricted the Steel Corporation in the amount by which it could increase its prices. This has an effect all along the line. The noble Lord knows as well as I do how these matters are dealt with.
§ LORD ALPORTMy Lords, may I follow the previous supplementary question I asked by asking this question? Would my noble friend say whether it is intended that the borrowing should take place on the London Market, or will it be from Government sources?
§ LORD DRUMALBYNMy Lords, the Steel Corporation can borrow only from Government sources.
§ LORD DOUGLASS OF CLEVELANDMy Lords, reverting to the question of prices, can the noble Lord tell us whether the prices which the Iron and Steel Corporation desired to apply were higher or lower than those generally applying in Europe?
§ LORD DRUMALBYNMy Lords, the Steel Corporation put forward its suggestions as to prices—the prices which it thought it could obtain—but the Government felt obliged to restrict that increase in prices for wider economic and national uses.
§ LORD DOUGLASS OF CLEVELANDMy Lords, if I may be allowed to say so, that does not answer the question. I wanted to know whether the British Steel Corporation wanted to charge higher prices than the normal prices current at the time in Europe.
§ LORD DRUMALBYNMy Lords, if I remember rightly, some of the prices were higher and some were lower. But what I 46 have said I think is right: the Corporation suggested prices it thought it could get.
§ LORD DOUGLASS OF CLEVELANDMy Lords, may I ask the noble Lord to refresh his memory and let me have some more information when he has done so, because I am convinced that his memory is at fault on this occasion.
§ LORD DIAMONDMy Lords, may I ask the noble Lord to give us the information which so many of your Lordships are seeking and which he has not yet given? If it is available it may be easier for it to be given now than for it to be obtained by one of us putting down a Question to the Government. What we are all seeking to find out is, quite simply, how much has been transferred by Government action from the consumer to the taxpayer, and what is the justification for it.
§ LORD DRUMALBYNMy Lords, the amount by which the Steel Corporation asked to increase its prices was about 14 per cent. all round. It was allowed to increase them by 7 per cent. all round. I think I am right in saying that the difference represented at the time about £60 million, but at the present time, because of market factors, it is probably a good deal less.