Iron and Steel Bill

HL Deb 01 June 1981 vol 420 cc1083-92

4.42 p.m.

The Minister of State, Department of Employment (The Earl of Gowrie)

My Lords, I beg to move that this Bill be now read a second time. The Iron and Steel Bill was introduced into your Lordships' House shortly before the Recess, having spent some three months under consideration in another place. The Bill has two distinct purposes. The first is to make extensive changes in the duties and powers of the British Steel Corporation and in the powers of the Secretary of State to give directions to the corporation. The second purpose is to effect a capital reconstruction of the corporation, to revise their borrowing limits and to reduce their interest burden.

The provisions in this Bill are necessary in order to ensure that the BSC can attain the objectives which underlie the corporate plan for 1981–82; namely—and obviously—to become internationally competitive and to end the era of persistent loss-making which over the years has been so expensive for the British taxpayer. These are commercial objectives and the Bill provides that the corporation can operate in a similar way to a commercial organisation, by enabling BSC to withdraw from activities on which a profit cannot be made. The Bill also removes the limits on the extent to which BSC can be privatised, whether by outright sale of assets or by joint ventures.

It is an essential element of the Government's policy towards the steel industry that BSC should compete fairly with private sector companies, and the Bill contains a new provision, inserted at Report stage in another place, which enables the Secretary of State to direct the corporation to set up separate companies for activities which are in competition with the private sector.

The modification of the corporation's functions and the organisation of their activities is effected by Clauses 1 and 2 of the Bill. The corporation will no longer have the main duty to promote the supply of iron and steel products or to ensure that the reasonable demands of United Kingdom manufacturers are met. A number of their subsidiary duties will also disappear, such as, for example, the duty to promote exports and to promote research and development.

The second part of Clause 1, subsection (3), modifies Section 3 of the 1975 Act which confers upon the corporation their powers to carry on iron and steel activities, to sell iron and steel products and to carry on certain other activities. This modification will secure that the corporation have the legal power to carry on activities through companies in which there is private sector investment. The overall effect of subsections (2) and (3) is threefold. First, they will facilitate the formation by the corporation of companies to carry on any iron and steel activities, or other activities within their powers, and the holding of shares in companies which also carry on such activities. Second, they will enable the corporation to operate entirely through other companies in which they hold shares so that the BSC themselves need carry on no activities on their own. Lastly, they will enable the corporation to dispose of property and rights so as to reduce the undertaking of the corporation to minimal proportions.

Clause 2 is a lengthy and complex clause and, as I have already mentioned, it was introduced as a new clause during the consideration of the Bill in another place. The opportunity has been taken in this clause of bringing together provisions relating to the organisation of the corporation's activities into a new section, 4A, of the 1975 Act. This new section begins by imposing an explicit duty on the corporation to organise their affairs in the most efficient manner. The new Section 4A provided for in Clause 2 also modifies Section 4(5) of the Iron and Steel Act 1975 to enable the Secretary of State by order to direct the corporation to discontinue or restrict any of their activities, or to dispose of any of their assets. Hitherto these powers were restricted to activities of BSC's business other than iron and steel activities.

In addition to the power to direct the discontinuation of activities and disposal of assets, a new power will be available to the Secretary of State to direct that the property or other assets which are specified in an order under subsection (4) of the new Section 4A should be transferred to a separate company which shall be formed for that purpose. This is provided for in the Bill by subsection (7)(a). In order to ensure that the company so formed into a separate and identifiable accounting unit actually carries on the type of business which is intended, subsection (7)(b) enables the Secretary of State to prohibit the company, except with his consent, from taking on assets which can be used for the manufacture of products other than those indicated in the direction. All companies formed in this way will be wholly-owned by the corporation but it will, of course, be possible for private sector capital to be introduced into these companies when that seems desirable.

The new powers of direction provided in Clause 2 have been introduced, as I explained earlier, in order to ensure that competition between BSC and private sector companies is seen to be fair. The gravity of the situation has already been recognised by the corporation. They have given assurances about their pricing policies, and they are already transferring two of their businesses into separate companies—the pipe-makers Stanton and Staveley and the steel stockholders, British Steel Service Centres. To this extent, therefore, the powers which we are now taking should be seen as reserve powers only. But they are necessary even if it transpires that their main function is to serve as guidelines for the way we believe the corporation should manage those businesses which are in competition with the private sector. It is most important that the private sector should be able to see that the corporation are competing on equal terms, and these new provisions should go a long way towards providing such reassurance.

A further purpose of Clause 2 is to remove the power of the Secretary of State to give general or specific directions with regard to the way in which the corporation organise themselves internally. In other words, the efficiency of the corporation's own organisation will be left where it should be: in their own hands. Clause 2 also removes any obligation on the corporation to carry out a formal review of the way their activities are organised and to report their conclusions to the Secretary of State. As a consequence, Section 5(2) of the 1975 Act, the requirement to consult employee representatives in any review of organisation, is also removed. That does not mean that the Government or the corporation consider that consultation with employees should be abandoned. Indeed, we are greatly in favour of increased consultation. But on matters of organisation, the effect of the Bill is to place the primary responsibility where it belongs, on the corporation's own management, who must be free to decide the circumstances in which employees are consulted.

I turn now to that part of the Bill which effects a reconstruction of the corporation's finances. The need for a capital reconstruction stems from an over-ambitious investment programme in the early 1970s which, admittedly with hindsight, was entirely inappropriate to the level of demand which occurred later in the decade, followed by a delay in allowing the corporation to adjust their capacity to the lower level of demand. The corporation were thus left with investments, some of them in modern equipment, that had no potential value in the foreseeable market conditions. The corporation have reduced their capacity rapidly over the past 18 months, and in doing so have written off large amounts from the value of their fixed assets, and incurred considerable redundancy and closure costs.

The investments written off, the generous payments to redundant steelworkers and the loss incurred through inefficient operations in the past can never be recovered. The Bill will recognise the cost to the country by writing off some £3,500 million from the British Steel Corporation's capital. The immediate write-off is effected by Clauses 3 and 4 of the Bill. Clause 3 writes off the liability of the corporation in respect of the remaining borrowings from the National Loan Fund amounting to £509 million. This will provide the corporation with an immediate relief from interest in 1981–82 of £59 million. The corporation's long term interest burden will as a result be reduced to £60 million in this fiscal year. This latter figure will be interest payable on the foreign borrowing which will remain on BSC's balance sheet. Clause 4, by virtue of subsections (2) and (3), writes off £3,000 million of the capital invested in the corporation under Section 18(1) of the 1975 Act. When this immediate write-off has taken place there will remain about £1,800 million capital on BSC's balance sheet. These write-offs do not represent the commitment of additional funds, they simply recognise quite clearly that the greater part of the large sums invested by the taxpayer in BSC in the past are now worthless.

The remainder of Clause 4 makes provision for a further write-off before the end of 1982 of up to £1,000 million of capital subscribed under Section 18. It should be possible next year to assess more accurately the economic size and potential earning power of the corporation, and to make further adjustments to the capital structure, if that seems appropriate. At present it is impossible to say whether any further write-off will be required, and if so what its size—within the £1,000 million limit—should be, but Clause 4 provides that any such further write-off must be by order subject to affirmative resolution.

Clause 5 will reduce BSC's borrowing limit under Section 19 of the 1975 Act to £3,500 million. The provision relating to the borrowing limit will supersede the borrowing limit of £6,000 million set by the Iron and Steel (Borrowing Powers) Act 1981 which will be repealed by this Bill. After the write-off of £3,509 million capital as provided by the present Bill, the new £3,500 million limit will allow BSC to acquire £1,500 million further borrowing without further reference to Parliament. There is provision in Clause 4 for further adjustment to the corporation's borrowing limit. It will be possible by order subject to affirmative resolution to increase the limit to not more than £4,500 million or to adjust it to a figure between £2,500 million and £4,500 million if a further write-off of capital is effected as permitted under Clause 4.

These financial provisions therefore write off past mistakes and debts, and very painful they are. Together with the corporate plan they will assist in paving the way for the future of BSC. They will ensure that the corporation embarks upon that future unencumbered by past debt and with a considerably easier interest burden. My Lords, in that light I commend the Bill to the House.

Moved, That the Bill be now read 2^a—(The Earl of Gowrie).

4.55 p.m.

Lord Ponsonby of Shulbrede

My Lords, I thank the noble Earl, Lord Gowrie, for introducing and explaining the technicalities of the Iron and Steel Bill and also for explaining the Government's intentions about the Bill. We welcome the financial provisions of this Bill but we have strong reservations about the disposal of public assets that could become a possibility under the Bill.

Steel-making capacity in the European Economic Community has for some years exceeded production and the effect of this has been to keep steel prices down. Therefore, British Steel has had to sell its products in a highly competitive market, made worse by inflationary pressures at home, and there is no prospect that those competitive pressures will ease. This situation has been compounded by the strength of sterling, particularly against the deutschmark and the yen, which have put British Steel at a competitve disadvantage. Indeed, I am told that Mr. MacGregor, the chairman of British Steel, has said that he could solve the problems of British Steel—at a stroke, I presume—if the pound was valued at only 1.50 dollars. I suppose this is one of the penalties which we pay for having the advantages of North Sea oil and a strong currency. This is some of the background against which British Steel has had to operate. I should also mention that last year's tragic strike in the steel industry did not help the industry itself, and that strike, I would submit, was caused by the Government's inflexible attitude at that time to that particular dispute.

Now the position is that we must all support this basic British industry, which is at the heart of our manufacturing capability. Therefore, we broadly support the financial provision of the Bill and the proposed future arrangements for the British Steel Corporation. However, I cannot say the same thing for those clauses which are based on the Government's doctrinal prejudice against nationalised industries. I could say a lot about this, but I fear that it would fall on deaf ears, and also I know that in the long run these clauses are likely only to be of academic interest in the present financial climate.

My Lords, we have spent quite a lot of time in this House since May 1979 debating and passing measures, despite opposition, allowing for privatisation to go ahead at the appropriate time whenever such action may be taken. In many cases, the Government will not find it possible to take any action on these measures until after the next general election, and by that time there will be a new Government which will see that these academic statutes on the statute book will not in fact take effect.

I think it is remarkable that, despite this doctrinal attitude, despite this doctrinal opposition to the public sector, the Government have been faced at the same time with the reality of life and have had continually to support the public sector. The Government have given substantial support to British Steel, to British Leyland, to International Computers; all of these are crucial industries which we cannot afford to be without.

In introducing the Bill, the noble Earl explained how the British Steel Corporation could dispose of assets; it could set up joint ventures. In fact it could at the end of the day find itself with nothing to do and with only some reserve powers. To a large extent we see a lot of this supposition as being really only of academic interest. The noble Earl has said that a great deal of public investment has been put into the steel industry, and he has rightly pointed out that a lot of this is in modern steelmaking capacity; and now he is saying, and the Government are saying, that this is worthless and it should be written off. Yet at the same time one can see that there could come a time when some of this investment could prove to be of priceless value, if there was an upturn in demand for steel, or if, for example, the pound lost its current strength. Therefore, to consign this extra capacity to the rubbish heap seems to be foolish. This was visibly brought home to me during the Easter Recess, when I found myself in Northumberland and motoring through Consett, seeing the vast steelmaking capacity silent and rusting away, so different from when I had visited it some years previously.

The Earl of Gowrie

My Lords, I am grateful to the noble Lord for allowing me to intervene. Before he leaves that point about write-off, surely he is not suggesting that the British Steel Corporation should still be burdened with the interest on that lost investment?

Lord Ponsonby of Shulbrede

My Lords, we welcome the proposals to write off the investment itself, but what troubles me is the plants concerned being allowed to fall into disuse, so that if they were subsequently needed they would not be available.

My Lords, on this day when the People's March for Jobs has finally reached the Palace of Westminster, and a delegation has arrived here, I should make clear that our main priority is to make certain that jobs are saved, and, whether those jobs are in the private or the public sector, if this Bill does anything to alleviate that situation then we support it. By the end of this year some 70,000 jobs will have been lost in British Steel over a 2-year period, and some 10,000 jobs will have been lost in the private sector. One questions whether this reduction in steelmaking capacity in the United Kingdom has been matched by similar reductions elsewhere in the European Economic Community, whether in fact we are being asked to take an unfair share of the burden in reducing steelmaking capacity. I should be glad to have a response from the noble Earl on that when he comes to reply.

As I have said, we oppose those parts of the Bill that undermine the future of British Steel. Our desire is to see British Steel as a thriving industry and we see it playing a substantial part in our future industrial prosperity. Without such a base we cannot remain an independent trading nation. With regard to the doctrinal parts of the Bill, we feel that, while perhaps this is an academic matter, it is wrong that those should be in the Bill at all.

5.6 p.m.

Baroness Seear

My Lords, I rise from these Benches to give general support to the Government's policy in this Bill, in particular to the intention to extend privatisation—if we have to call it "privatisation". I suppose that is the word, though I should have thought that the noble Earl, Lord Gowrie, with his skill with words would have been able to devise a better term.

Unlike the noble Lord, Lord Ponsonby, I feel that part of the problem of the steel industry today stems from the doctrinal obsession with nationalisation exhibited in the past by the Labour Party. Surely this is an industry which never was appropriate for nationalisation. It is an industry with a wide variety of quite different markets, both internal and external. An industry of this kind is surely far better handled not by one huge organisation such as the British Steel Corporation but by the development of private enterprise concerns able to discover new markets, to develop expertise and specialisation, and therefore to develop a steel industry for the future. So we welcome the Government's intention to see that this monopolistic control of the steel industry from which the industry has suffered for a considerable time is broken down.

We must, I suppose, also welcome the writing-off of the enormous losses. These figures are so astronomical that we say them with little realisation of the resources which have been wasted when figures of this kind are bandied about. It is an indictment of the whole way in which this industry has been handled. It is, in my view, an indictment of the policy of nationalisation of steel.

Of course, we recognise that the steel industry worldwide has had a very difficult time, that there is a gross over-production of steel. The problem has no doubt been exacerbated by the high inflation experienced in this country and by the very high level of the pound at the same time. But to pretend that it is this which really lies behind the troubles of the industry is, it seems to me, totally unrealistic. When the noble Earl speaks of cancelling this enormous debt, can we not ask him and his Government once again to look at other uses of this money? How much better off we should be today if, instead of this money invested in steel being written off, it had been put into the development of industries for which there really is a future.

We are now at least stopping the fatuous policy of pouring good money after bad. But let us not, as suggested earlier today at Question Time, continue with the idea that we do not want to put new public money into investment in new industry which will provide jobs for people who are losing the jobs in the steel industry. When it comes to the question of employment of people who have worked in the steel industry and whose jobs have gone, I know that a considerable amount has been done as regards retraining. But may we not ask that still more vigorous steps should be taken to enable men coming out of the British Steel Corporation to find their way into a variety of new jobs? Many of these men may not be skilled in the exact sense in which skilled jobs at present are calling for people. But I find it impossible to believe that men who have undertaken responsible and skilled work in the steel industry cannot easily he retrained either to fill jobs which are still unfilled and which require skills or to undertake the jobs which will be coming with new high technology industry.

We know that people today can learn very quickly. Modern training methods mean that they can acquire these skills. Two things are needed: first, that the training facilities are there and, secondly, that when these steelmen have been trained they are given a welcome into the new industry with the minimum amount of restriction on who works with whom. Unless we take a vigourous line on that, we shall be sacrificing human assets, which will be far worse than sacrificing the physical assets which are being written off at present.

I regret the action that has been taken by the Government in removing the requirement for consultation inside the industry. The noble Earl, Lord Gowrie, says that that would be undue interference with the way in which the industry is run and that the decisions to be taken about these matters are properly taken by the managements inside the industry. I am entirely in support of the idea that we do not want the Minister or the Minister's civil servants telling people with considerable expertise in running the steel industry how they ought to do it. With that I should be entirely in agreement. But it is surely most unfortunate that at this time a requirement to consult should be removed. Maybe if it did not already exist it might or might not be appropriate to put it in—I believe that it would be appropriate—but to take it out at present seems folly.

When an industry is being re-organised and reduced as this one is; when new developments need to be introduced; and when we need the maximum amount of collaboration and understanding between management and labour in very difficult and painful conditions, surely the maximum amount of consultation and participation is called for. It is a tactless gesture, if nothing worse, to remove a requirement to consult just at the very time when the maximum amount of consultation is what is needed if there is to be a new start in what is left of the steel industry.

5.13 p.m.

The Earl of Gowrie

My Lords, I am grateful for the remarks of the noble Baroness, Lady Seear, and the noble Lord, Lord Ponsonby of Shulbrede. This whole Bill seems like a somewhat technical Bill concerned mainly with financing and writing-off previous investment and interest charges within the general pool of Government expenditure; but I think that it is, in fact, a lot more than that. It is, as I think the noble Baroness appreciates, though not alas! yet the noble Lord, Lord Ponsonby, a really terrifying indictment of how job protectionism costs money and jobs. If this industry had been allowed to adapt its capacity at an orderly pace to the needs of the market, those people who were displaced would have been able to seek work and find it in a much more propitious general atmosphere for employment and a no less propitious atmosphere in terms of the redundancy compensation which a civilised society provides. Again and again we have seen that the illusion has spread that if one works in a nationalised industry one's job can be saved—and, of course, it can so often be saved for a bit longer. But when time runs out and the money inevitably runs out, all the more jobs go at a cataclysmic rate.

The noble Lord, Lord Ponsonby, talked about our doctrinal prejudice against nationalised industries. The lack of flexibility, the enormous and undisciplined costs which are now burdening the taxpayer and preventing the Government from spending money in all sorts of other directions in which many of us would like them to spend money, and the job losses that I have just mentioned, are exactly the kinds of conditions in these jumbo public sector industries that underlie our doctrinal prejudice. In fact, I would not call it "doctrinal": it is a result of being bruised where it hurts for all of us—that is to say in the pocket and in job losses. I agreed with the noble Lord, Lord Ponsonby, when he said that the condition of the British Steel Industry had been made worse by inflationary pressures at home; and, of course, the career of the British Steel Industry over the last 10 years has partly contributed towards those inflationary pressures, and again we very much regret that.

We have often been over the field about, as it were, virtuous public spending for investment and unvirtuous public spending. The difficulty—apart from the question that all money spent by Governments, whether spent in virtuous causes or unvirtuous casuses, has to be borrowed or taxed—is that a great deal of this investment which the present Bill is having so sadly to write-off and at such cost to the country was considered absolutely admirable and sensible at the time. It was put into very forward-looking capacity and forward-looking plant and yet, as we have seen, a lot of it—although not, I am happy to say, all—has come to nothing.

The noble Lord, Lord Ponsonby, asked me a question about the reduction in capacity. British Steel will have 3 million to 4 million tonnes of reserve capacity as against 14 million tonnes in operation at present. This provides a generous margin. In Europe, France has reduced capacity over the past few years, and Belgium is considering rationalisation proposals for its steel industry and I may say, without any pleasure, that the Belgian steel industry is, of course, in very considerable financial difficulty. So we are all to some degree in this boat at present.

The noble Lord also mentioned Mr. MacGregor. I know Mr. MacGregor and I am very pleased to pay tribute to his ability and the extraordinary tasks that he has undertaken and the very considerable achievements which he has realised. But, of course, when the noble Lord was worrying that we might be writing-off plant which, as it were, had a future, as I made clear in my speech, a great deal of the cost and the write-off of these huge sums which I itemised a few moments ago, has in fact been the cost of buying people out of work. It is a sad fact in the modern economies in manufacturing, though not in other spheres of activity, that one either has to have cheap labour or one has to have very productive labour. Productive labour means nowadays not people who work hard, but overwhelmingly machinery rather than men. That is a fact of life under successive Governments and throughout the western world.

I agree that there would have been other and better uses for the money put into British Steel. With hindsight that is, of course, an easy thing to say. But one can understand the considerable caution with which all once-bitten-twice-shy modern Governments now approach earnest appeals that they should undertake further massive spending and investments in industries whose future is also painted extremely brightly. Speaking as an employment Minister rather than an industry spokesman for this purpose, I should of course like to see an exciting programme of investment and the demand, not least in the private sector, that would be created thereby. But successive Governments have got it very wrong in the past as to what will or will not succeed, and I think that at least a certain amount of caution should be urged on all Governments at the present time.

That said, I welcome the general reception that the Bill has had. I shall consider the point that the noble Baroness made about participation. Of course, it would be rather unreasonable for a Government which is urging participation on firms, but urging it in a way that is tailored to their specific needs and to their collective arrangements, to leave statutory requirements on the books in this case. That was thought by us to be an inconsistency. However, as the noble Baroness knows, I am keen on the issue and I shall look at that point; perhaps we can return to it when we discuss the Bill at later stages.

On Question, Bill read 2^a, and committed to a Committee of the Whole House.