HL Deb 14 December 1981 vol 426 cc26-33

4.7 p.m.

The Parliamentary Under-Secretary of State, Department of the Environment (Lord Bellwin)

My Lords, with the leave of the House, I should like to repeat a Statement being made by my right honourable friend the Secretary of State for Industry in another place. The Statement reads as follows:

" With permission, Mr. Speaker, I should like to make a Statement about the private sector of the steel industry.

" When the 14 major companies in the United Kingdom steel industry were nationalised in 1967 it was recognised by the Government of the day that special measures were needed to ensure fair competition between the public sector, which was expected to represent well over two-thirds of the industry, and the private sector, which would consist of about 100 firms covering the remainder of the industry. Accordingly, the 1967 Iron and Steel Act contained provisions to this end.

" When Britain joined the European Community on 1st January 1973 the steel industry in this country came under the regime of the Treaty of Paris— —the European Coal and Steel Community—and, in so far as products fell outside that treaty, within the industrial articles of the Treaty of Rome.

"Since the competition provisions of the 1967 Act were inconsistent with those treaties, they were repealed by the European Communities Act 1972. Accordingly since then competition between BSC and the private sector has been governed by the provisions of those treaties.

" As the House well knows, the period since 1974 has been one of continuing, indeed intensifying decline for the whole European steel industry. Production in Europe which in 1974 was 156 million tonnes of liquid steel had fallen by 1980 to 128 million tonnes, leaving substantial spare capacity.

" Price competition became increasingly intense. Prices today are lower in money terms than they were two years ago. At the same time, costs— particularly energy costs—have continued to in. By mid-1980, there was hardly a steel company in Europe operating profitably. These difficulties were so great that, although the Treaty of Paris prohibits state subsidies to the steel industry, the Council gave its assent to a decision of February 1980 which allowed the Commission to give temporary approval to state aids linked with restructuring. Towards the end of 1980, mandatory production quotas were introduced by the Commission with the approval of the Council.

" Despite these measures, by mid-1981 the Community steel industry faced crisis conditions. Prices were well below any possible break-even point for the industry and severe disruption through massive over-capacity and unrestricted competition threatened

" Accordingly, a further crisis package of measures was agreed, comprising the extension of mandatory production quotas for some products, voluntary industry restraint agreements, monitored by the Commission, for others, and strict enforcement of the ECSC rules on pricing transparency by both producers and the larger distributors.

" The measures to stabilise prices and to increase them so that firms may once again move into profitability will, of course, help the private sector along with the rest. But, by itself, this will not be enough. In other Community countries, various forms of aid are available from Governments both to public and privately owned companies. In Britain, help has been confined to the British Steel Corporation. The private sector has received no assistance, apart from regional aids which are also available to BSC. Since 1975, successive Governments have made available to the British Steel Corporation a total sum approaching £5,000 million, partly to fund operating losses, partly to finance investment in the modernisation of plant and partly to meet the costs of closures and rationalisation—mainly redundancy and resettlement costs.

" The British Independent Steel Producers' Association have for some time been making representations to the Government about the extreme unfairness of the system under which they are expected to operate. They have pointed out that steel is unique in that it has its own régime under the Treaty of Paris—something which is not applicable to any other industry. They have pointed out that in no other European country have massive sums of aid been given to the public sector while nothing has been given to the private sector. They have pointed out that the effect of this is that even where Community aid is available it has gone exclusively to the BSC.

" I have been giving urgent consideration to this powerful case. I am pleased to tell the House that I have decided to introduce a scheme under Section 8 of the Industry Act 1972 to help the private sector steel companies in Britain with rationalisation and restructuring projects and with the costs of redundancies. The scheme will offer up to £22 million of assistance to the industry by the end of 1984. Eligible projects will attract grant at the rate of 25 per cent. The scheme will also guarantee 85 per cent of the cost of statutory redundancy payments and provide a maximum contribution of £500 per person to the employers' costs of any ex gratia or severance payments.

" This scheme is intended to cover steel products as defined by the Treaty of Paris with the addition of the drawing, cold rolling and cold forming of steel (excluding the drawing and manufacture of steel wire and wire products). I will publish details of the eligible sectors of the industry in the Official Report, and they are available in the Vote Office. Full details of the scheme will be available very shortly from my department.

" The scheme has, of course, to conform with the obligations we have undertaken when we agreed to the ECSC decision on state aids promulgated in August of this year. As such, it has to be confined to assisting restructuring, rationalisation and redundancies. Applications for help with restructuring projects must be made by September 1982; No payments can be made after 31st December 1984. As required by the treaty, the scheme is being notified to the Commission for approval, but I do not anticipate difficulties in this regard.

" Quite separately, the steel casting sector has drawn up a scheme to allow the rationalisation of that part of the industry whereby firms reducing capacity would be compensated by a voluntary levy paid by companies remaining in production. To work, the scheme requires front end loading, and I am giving urgent consideration to making a grant under Section 8 of the Industry Act 1972. Any payment would be conditional on a substantial majority of this industry agreeing to fund a significant reduction in capacity, thus fulfilling the requirements of Section 406 of the Income and Corporation Taxes Act 1970.

" Mr. Speaker, the Government are determined to secure the survival of a healthy, profitable and, hopefully, expanding private sector in steel. I believe the measures I have announced are fair and responsible. They can be accommodated without any increase in the allocations to my department. I commend them to the House."

My Lords, that is the end of the Statement.

Following is the information referred to in the Statement:


Assistance will only be considered in respect of establishments in the private sector primarily engaged in the following activities:

Activityex 2210 Manufacture of the following products, described in Annex 1 of the ECSC Treaty, from ordinary or special steel:
(i) Crude and semi-finished products, including products for re-use and re-rolling (liquid steel for casting; ingots for remelting and forging; semi-finished products such as blooms, billets, slabs and bars; and hot-rolled wide coils other than finished products);
(ii) not-finished products such as rails, sleepers, soleplates, joists, heavy sections of 80mm and over, sheet piling, bars and sections of less than 80mm and fiats of less than 150mm, wire rod, tube rounds and squares, hot-rolled hoop and strip hot-rolled sheets under 3mm, plates and sheets of 3mm thickness and over, and universal plates of 150mm and over; and
(iii) certain steel sheets and strip: namely, tinplate, terneplate, blackplate, galvanized sheets and other coated sheets; cold-rolled sheets under 3mm; electrical sheets; and strip for tinplate.
2235 Drawing, cold rolling and cold forming of steel(excluding the drawing and manufacture of steel wire and wire products). This covers units engaged in cold rolling steel hoop, strip or sheet (over 3mm) from purchased or transferred hot rolled sheet; cold drawing steel bars and shapes from purchased or transferred hot rolled steel bars; and the manufacture of other cold finished products (except wire and wire products) not specified in the ECSC Treaty.

Assistance will not be considered in respect of establishments primarily engaged in the manufacture of raw materials for iron and steel production, pig iron and ferro-alloys, iron products, or steel products other than those listed above.

4.15 p.m.

Lord Bruce of Donington

My Lords, the House will wish to thank the noble Lord for the very lengthy and comprehensive Statement that he has made. I have said "lengthy", but we make no complaint about that. The steel industry in the United Kingdom is one of the sinews of its productive power and we should not cavil, therefore, when some considerable effort is made to help it. Indeed, it may well be thought that the issues raised not only by this Statement, but also by the preparation of the BSC's own report, might provide a convenient opportunity for the House to debate the steel industry as a whole on some future occasion.

We on this side of the House support the measures that have been announced by the noble Lord, even though they amount to some £22 million, which is not a very considerable sum when measured against the real need. At the same time, the noble Lord cannot complain if we say to him that this, of course, represents a reversal of the policy of non-intervention in private industry which, in political terms, the Government are so assiduous in pursuing. He will understand when we say, without complaint, that it represents a minor U-turn. In so far as the penetration of logic has convinced the Government in this instance to abandon a somewhat more rigid instance, we on this side of the House support it.

The noble Lord gave some account of the miseries and the uncomfortableness, generally, of the steel industry in Europe. We now learn, although we were not told before within the political context, that most steel companies in Europe have been making a loss. The general public in the United Kingdom is sometimes given the impression that it is only nationalised industries in the United Kingdom that make a loss. But we are now reassured that all, or practically all, of the steel-producing companies in Europe are making losses or, in the words of the Statement, are failing to reach "break-even point".

The noble Lord has given some reasons as to why the British industry and, in particular, its private sector has suffered. In his Statement, he gave as an example rising energy costs. Yes, my Lords, he can say that again. Up until 31st March 1981, there had been a 20 per cent, increase in electricity prices, a 36 per cent, increase in gas prices—and more are still in the pipeline since that time—and those price increases have been dictated by the Government themselves. In so far as it is dependent on exports, the steel industry has also suffered from a high exchange rate, which, of course, has meant, once again, that European steels have been more competitive. But more serious than that, one of the basic reasons for the decline in the fortunes of the steel industry—and I am talking in terms of the private sector producing some 1 million tonnes less for the year 1980–81 than for 1979–80— has been the fall-off of domestic steel by ordinary manufacturing industry. This is part of the consequences of the general policy of deflation which has been followed by the Government in pursuit of their monetary doctrine. We support therefore the grant which is going to be made and the extra percentage of support which is going to be given for redundancy payments.

We are, however, a little anxious to know what is meant by that portion of the Statement which says: Any payment will be conditional on a substantial majority of this industry agreeing to fund a significant reduction in capacity, thus fulfilling the requirements of Section 406 of the Income and Corporation Taxes Act 1970 Could the noble Lord tell the House what is meant by "a significant reduction"? Is it anticipated that the domestic demand will remain as low as it is now? And is it anticipated that overseas markets will be restricted even more than they are now, bearing in mind the observation of the noble Lord's right honourable friend that a slight increase in manufacturing production (dare I mention it?) of 1 per cent, is anticipated in 1982? When are these projected or promised increases in production going to filter their way through to the steel industry?

In one part of the Statement mention is made of an increase in steel prices as, no doubt, part of the task of restructuring the European steel industry as a whole. Away with the price declines that come inevitably from the practice, acceptable to the Government economists, of free competition in its purest form! Has the noble Lord formed any assessment of how much prices are going to rise? And could he give some indication of the ultimate effect of that price rise on the retail price index? With those few words and apologising to some extent for the critical note that one is forced to adopt on these occasions, we are very grateful for even this small amount of aid which the Government have decided to give by way of intervention in private enterprise.

Baroness Seear

My Lords, we on these Benches would also like to thank the Minister for repeating the Statement. Obviously the objective must be, with our partners in Europe, to move towards a smaller, more efficient, more competitive steel industry. But given the state of the steel industry throughout the Community at present it is, sadly, inevitable that this means assistance to the industry in order to be able to reduce capacity to the state at which it will be possible to build up that more efficient and competitive industry. Therefore, we very much welcome the fact that the Government have decided to take this step.

In the development of the steel industry of the future, to us it is obvious that the private sector should play a considerable—we would hope an increasing role. It is clear also that in the past the private sector in relation to the British Steel Corporation has had a pretty raw deal. We are glad therefore that the Government are intervening in order to help the private sector. We believe that from that part of the steel industry (as well as, we hope, from the public sector) will come the steel industry of the future that we wish to see. Therefore, far from jeering at the Government for a small U-turn, if that is what it is, we welcome the fact that the Government are taking a pragmatic line. We only wish that they would do so on a great many other occasions. I can assure the Government that every time they do we shall applaud rather than scorn them for their second thoughts in this manner. We are very glad that this is the line they are taking at present.

May I add just two comments. Surely this is an example of the way in which it is highly desirable that in economic development we should work with our partners in Europe. It would be ridiculous for the steel industry of this country to attempt to plan its future without regard to what is happening in Europe. If, indeed, the Labour Party had its way and we had to operate in isolation from Europe, the position of the steel industry would be a great deal more unfortunate than it is at present.

We should also like to suggest that in the private sector steps ought to be taken to encourage a higher degree of employee involvement. We hope that in the future these companies will be profit-making. Would it not be appropriate to suggest the development of schemes so that employees can share directly, through profit-sharing schemes of one kind or another and through greater employee participation, in the well-being, to which we look forward, of this section of the industry?

Lord Bellwin

My Lords, I am grateful to the noble Lord, Lord Bruce of Donington, and the noble Baroness, Lady Seear, for their support. I appreciate their reluctance in some ways. Nevertheless, I think I understand why. The noble Lord, Lord Bruce of Donington, referred to this as a reversal of the policy of non-intervention. I do not think anybody would quarrel with the statement that the private sector of the steel industry faces very special difficulties in as much as it competes both with a subsidised European industry and also with the British Steel Corporation which is substantially supported by the taxpayer. It is true to say that this applies to no other industry in this country.

The fall-off in domestic turnover is due, the noble Lord, Lord Bruce of Donington, said, to our deflation and monetary policies. This hardly fits with his other observation: his pleasure that I had emphasised that this is the situation in other countries. Not all of these other countries have adopted the same policies, yet they seem to be in the same situation. Therefore we must accept that the reasons for this fall-off are not those which the noble Lord gave.

The noble Lord also asked me what is meant by "a significant reduction"? Well, how long is a piece of string? This will depend upon the part of the industry concerned, the latest demand prospects and so on. It is very hard to do other than to generalise and express, as I have tried to do, the expectations. The noble Lord also asked me how much the increases in steel prices would be and what effect these would have. I am sure he will appreciate that I cannot give him this information now. Indeed, I doubt whether I could even write to him about it, because this is something which will develop as events follow through.

I was appreciative of the remarks made by the noble Baroness, Lady Seear. She said that she hoped that in future there would be encouragement of a high degree of employee involvement in the private sector of the steel industry. I imagine that during the last few years the employees in the private sector have been very glad that they did not participate in shareholding schemes, because there are always losses as well as profits. One of the great fears regarding that type of involvement is what you do when there are losses. It is fine when one talks about sharing out profits. But here it is not just a question of profits; it is a matter of losses as well.

I do not think I can add further to what the noble Lord and the noble Baroness have said, but I repeat that I am very grateful for their support.

Lord Beswick

My Lords, is it not a fact that these sums of money which are being distributed through the Brussels organisation are being made available only on condition that there is a reduction in the total capacity in Western Europe at a time when capacity is being increased in other parts of the world? What agreement on this has been reached in Brussels? What is the proportion of the United Kingdom reduction as compared with the agreed reduction in France, Germany and Belgium?

Lord Bellwin

My Lords, at this time I certainly cannot give the noble Lord that information. I will be glad to write to him with that information so far as it is available. I suspect, however, that it is not readily available as such, because I would imagine that the general policy of assisting in the way that is being done in other countries, and which we are now trying to follow, is something which they have done for a while. But I would say again that they do not have the situation which we have here, where their taxpayers subsidise a nationalised sector of an industry in competition with the private sector. I do not believe that it will not be easy to draw exact comparisons, but, if the noble Lord would like me to do so, I would be very glad to give him such additional statistical information as I can obtain.

Viscount Hanworth

My Lords, I welcome this Statement. Some noble Lords may remember that a few months ago I raised the very difficult situation of one company and the most unsatisfactory method which the Government had pursued in relation to them. Would the Minister not agree that at least a large proportion of the trouble with our steel industry has been due to adversary politics between the two parties; nationalise steel, denationalise steel and renationalise steel? How can any firm look ahead when its future has been as uncertain as that? That is one reason— the fact that adversary politics of that nature are no longer tolerable—why I sit where I do today, on the SDP Benches.

Lord Bellwin

My Lords, I really do not think that what the noble Viscount refers to as "adversary politics" is connected with it at all. The fact is that a Government of a certain complexion set out to follow a policy which they believe the right way to help the industry concerned. If events prove to be that, in the opinion of a successive Government, that is not the right way, then they will follow their policy. But I do not think that it is a matter of adversary politics as described by the noble Lord at all. The fact that this situation applies all over Europe means that one simply cannot say, "This is brought about by one Government or another", because one would then have to go to all the other Governments of all the other countries and try to apply the same. Clearly, I do not think that I can agree with what the noble Viscount said as to that.