THE BRITISH STEEL CORPORATION (Hansard, 22 March 1978)

Lord ORAM
My Lords, I will, with permission, repeat a Statement on the British Steel Corporation being made in another place by my right honourable friend the Secretary of State for Industry. The Statement is as follows:
"As my right honourable friend the Prime Minister told the House on 28th 1813 February, the Government have been conducting a study in depth of the medium and longer-term position of the British Steel Corporation. There has recently been much public concentration on the Corporation's likely losses in 1977–78. As I have told the House, these losses result from the worst crisis in the world steel industry for over 40 years and one in which the BSC's overseas competitors are suffering in common with the Corporation.
"Our review has now been completed. Close consultations have taken place with the Corporation and the TUC Steel Committee. We have also taken account of the reports of the Select Committee on Nationalised Industries. The Government's conclusions are set out in a White Paper which is being published today. A separate White Paper will be published soon giving the Government's response to the Select Committee's recommendations.
"A modern steel industry is vital to an industrial nation. The Government will therefore ensure that a substantial bulk steel-making capacity is available in this country. The BSC plays a key rôle in supplying our manufacturing industries with the major part of their steel requirements. That must continue.
"Our examination has shown that the present world surplus of steel will last for many years and that on the most optimistic assumptions the sales opportunities for BSC, both at home and overseas, on which the 10-Year Development Strategy of February 1973 was based, are no longer realistic. In present market conditions, the Corporation has substantial over-capacity. In the next few years considerable additional capacity will become available from large modernisation and expansion schemes already close to completion. A sufficient margin is essential to supply home and export needs when the world economy moves out of recession, and to provide for the unforeseen eventualities which have persistently invalidated previous forecasts. But neither the Corporation nor the country can afford the cost of the mounting over-capacity that would result from unchanged policies.
1814 "Accordingly, the BSC has proposed and the Government have agreed the following policies:
First, modernisation and expansion projects already approaching completion must be finished; for example Redcar II B and Ravenscraig III.
Second, substantial investment to improve product quality and so ensure competitiveness in the 1980s must continue. Subject to the conditions in the White Paper, the Corporation hopes to make a start on the installation of continuous casting facilities at Port Talbot in 1978–79.
Third, the Government have approved a proposed capital investment programme for BSC for the year 1978–79 at out-turn prices of £500 million. For the year 1979–80, subject to the normal annual review, there will be, again at out-turn prices, a further £500 million.
Fourth, there is no case at present for new starts on increased steelmaking capacity, so the proposed expansion in capacity at Port Talbot and the construction of electric are plants at Shelton, Hunterston and Ravenscraig must be deferred until demand forecasts improve sufficiently to justify their construction.
Fifth, the major and costly new mill projects for hot rolled coil at Port Talbot, plate at Teesside and tinplate in South Wales must similarly be deferred.
"For BSC to achieve financial viability, it is necessary for capacity to move more into line with demand. The Government have therefore accepted that BSC should seek to negotiate the closures in 1978–79 of high cost plants, in particular the Beswick review plants, in close consultation with the TUC Steel Committee and the local work-forces. As the House knows, terms have already been agreed for the closure of the Clyde Iron Works, the Hartlepool Steelworks and the East Moors Steelworks.
"The Government will seek to ensure that everything practical is done to provide alternative employment in the areas affected by steel-making 1815 closures. For its part, the Corporation will intensify its efforts in this direction, through its subsidiary BSC (Industry).
"The White Paper gives details of the special measures we propose at Hartlepool and East Moors. The Scottish Development Agency is already taking all practical measures to assist employment in the area affected by the closure of the Clyde iron works. The Government will announce any necessary remedial measures at other plants when closure dates have been negotiated by the BSC.
"The Government's present view is that further rationalisation will be necessary after 1978–79. However, both the Government and the BSC favour a step by step approach which will retain flexibility to adapt to developments in the market. Hasty and arbitrary decisions now could close the door to meeting future requirements.
"As the House knows, BSC faces serious financial problems. In this the Corporation is not alone among the world steel industries. The Corporation will need a substantial capital reconstruction at a reasonably early date. This will not of course affect its overseas loans which will be serviced and repaid on the due dates. In the present uncertainty in the steel market, it is very difficult to determine the precise size and nature of the reconstruction needed to produce a viable long-term capital structure. Pending that reconstruction, and in place of further advances from the National Loans Fund and of public dividend capital on the present criterion, the Government will meet BSC's financial requirements (other than short-term) by subscription of equity capital under Section 18(1) of the Iron and Steel Act 1975. These requirements include finance for capital investment, meeting obligations under National Loans Fund and other loans and covering the deficit expected to arise before reconstruction. BSC will continue to make short-term borrowings under Section 16 of the Act within the ceiling determined by the Government.
"Because of the immediate financial outlook, no dividend is expected on the new capital before the reconstruction. But I should make it clear that I will 1816 require all new capital subscribed from 1st April to be properly remunerated by dividends after the reconstruction. It would be premature to fix a minimum dividend requirement at this stage. I shall shortly present to the House legislation to raise the borrowing limit for BSC; more detailed information will then be given. We shall continue to determine the Corporation's cash limit on a year by year basis and will take into account the Corporation's physical and financial progress. For 1978–79 the cash limit will be £875 million.
"The funds required by BSC inevitably place a heavy burden on the public purse and divert resources from other desirable objectives. This can only be justified if both management and workforce can show they are taking the necessary steps to achieve the lasting viability and international competitiveness which are the Government's firm objective.
"Very substantial improvements in productivity are also needed if the Corporation is to become viable. The trade unions and local workers' representatives have a major role to play in this. The TUC Steel Committee have made clear their own commitment to achieving this improvement. For their part, the Government are determined to give full, sustained and public support to steps to achieve improved productivity in BSC and will continue to promote this with both the BSC management and the TUC Steel Committee".
My Lords, that concludes the Statement.

Lord CAMPBELL of CROY
My Lords, we thank the noble Lord, Lord Oram, for having repeated the Statement that was made in another place. It is a very long Statement and, together with the White Paper which I understand has just been published, it raises financial and technical matters, all of which must deserve close study within your Lordships' House. I am glad that the Government have as their firm objective "the lasting viability and international competitiveness" of the British steel industry.
However, looking back over the last four years I am compelled to suggest that 1817 the Government's handling of the industry has been far from reassuring. Situations have been consistently misappraised and action has been misjudged. About two years ago the Beswick Review produced a report assessing that there was an improvement in the prospects for the industry and allowing the postponement of certain painful closures. Only last year it was discovered that the BSC situation was even worse than it was before Beswick.
At a time of very high unemployment this is a most disquieting Statement. As the Statement has confirmed, we all know of the need for greater productivity in the industry. But we also know of the serious effects which carrying that out can have on jobs in the steel-making areas. I have two questions to put to the noble Lord at this point. First, can he tell the House whether this means that the Government have now abandoned the 10-Year Strategy for BSC, which was worked out before 1974? Secondly, can he give the House approximately the number of millions of pounds a day of public money which the Corporation is now losing, either today or to the latest date for which figures are available?

§ Lord ROCHESTER
My Lords, we on these Benches should also like to thank the noble Lord, Lord Oram, for having repeated this Statement. We welcome the fact that at long last the Government appear to have grasped the nettle of acquiescing in the closure of obsolete plants and of accepting the inevitable redundancies that will follow in areas which, for many Labour Members of Parliament, are politically very sensitive.
Speaking from some experience, if I may, I think that the British Steel Corporation is to be congratulated on the way in which it has recently set about negotiating redundancies with the trade unions concerned on a plant-by-plant basis. It is particularly to be congratulated on its pioneering work in seeking to attract new industry to the areas affected. This is an unhappy task, but in our view it must proceed if the Government are to achieve their firmly-stated objective of international competitiveness.
We have noted the step-by-step approach which is also being made to the question 1818 of capital investment—£500 million in 1978–79 and, subject to review, the same figure for 1979–80. The need to cut back on future capacity also involves this step-by-step approach. As an outsider it is not easy to form a judgment as to the appropriate figure, but in selecting these figures it is at least reassuring to learn that the Government are acting on the recommendation of the Steel Corporation.
In the White Paper which has just appeared it is acknowledged that the productivity of the Steel Corporation compares unfavourably with that of international competitors. Stress is placed on putting that right. One has had only a brief opportunity to look at this. I should like to ask the noble Lord this question: In so far as this means dealing with over-manning, is it the intention to give generous redundancy payments not only to workers at plants which are to be closed, but to those at plants not to be so dealt with?
Finally, at the end of the White Paper it says that it is essential for the country as a whole to understand the problem and to support the remedies, and to help in the achievement of a common objective of a competitive, profitable, efficient steel industry. That leads me to ask one general question which could equally well be addressed to the Conservative Front Bench. Does not the future of this industry present one of those major national problems about which it would be helpful if the Government of the day, in the interests of continuity of policy, were to involve the Opposition Parties, perhaps by building on the recent development that there has been—particularly in the case of steel—of the Parliamentary Select Committe procedure? Further, should not this be done before, and not after, decisions are taken on such basic matters as the future size of the industry and its investment plans?

Lord ORAM
My Lords, I should like to thank the two noble Lords for their comments and questions. As the noble Lord, Lord Campbell of Croy, rightly said, the Statement was a very long one and, although the White Paper is not long, it needs study together with the Statement which I have repeated. On that I entirely agree with the noble 1819 Lord. But beyond that I incline to disagree with him because he sought to make a Party point with regard to what he called the Government's handling of the industry and how the Government had been guilty of misappraisal and misjudgment in these matters. This surprises me a little, coming from a supporter of the Government that was in power in 1973 and which produced a White Paper which also turned out to be a serious misjudgment of the future. But I would not have sought to make that as a Party point because, clearly, developments such as the world oil crisis and the degree to which international trade has slumped were matters which any Government could be excused for not being able to foresee. The situation since 1973 has been full of difficulties as regards accurate forecasting.
The noble Lord, Lord Campbell of Croy, asked specifically whether the Statement which I repeated implies the abandonment of the 10-Year Strategy which was contained in the 1973 White Paper to which I have referred. I think that I can best answer that by repeating one sentence from the Statement, in paragraph 4. It says: Our examination has shown that the present world surplus of steel will last for many years and that on the most optimistic assumptions the sales opportunities for BSC, both at home and overseas, on which the 10-Year Development Strategy of February 1973 was based, are no longer realistic. So, since those forecasts were unrealistic, obviously a reassessment of policy has been necessary. The noble Lord then asks for a statement of the losses in the current year, which has not quire run out. But it is, of course, as is widely known, a very serious situation indeed, and the loss is estimated at £520 million which, since he wants it in daily terms, is the equivalent of over £1 million a day.
The noble Lord, Lord Rochester, put his finger on an important point when he referred to the negotiations that are necessary between the BSC and the TUC Steel Committee. I would agree that much will depend on the success of these negotiations. He called attention to what is described in the White Paper and in the Statement as the step by step approach. I think that is a particular point that needs stressing. That is the 1820 approach that the Government and the BSC now take, maintaining a degree of flexibility and watching the situation as it develops.
He then referred to the problem of over-manning, which is dealt with in the White Paper as he indicated, and asks whether the degree and method of redundancy in plants which are not to be closed will be dealt with as well as in those which are closed. My understanding is that throughout all the plants these matters of redundancy will be the subject of these negotiations, on which the White Paper lays considerable stress, between the management and the trade union movement, and I am glad to say that, as the noble Lord indicated, the spirit in which these negotiations seem likely to be conducted is a good and responsible one, and bodes well for the future.