HL Deb 26 May 1988 vol 497 cc1013-31

11.32 a.m.

The Secretary of State for Trade and Industry (Lord Young of Graffham)

My Lords, I beg to move that the Bill be now read a second time. As I said in my Statement to the House on 3rd December last year, the British Steel Corporation has now reached the stage at which it would benefit from a return to a fully commercial environment. I said that legislation would be introduced in this Session to turn the corporation into a Companies Act company. The House now has that legislation before it and I should like to outline its main provisions.

The Bill is an enabling Bill. It paves the way for the subsequent privatisation of British Steel. The core of the Bill is to be found in Clause I, which provides for all of the property, rights and liabilities of the corporation to vest in a successor company. That company will be a Companies Act company set up for the purpose of vesting. The successor company will be limited by shares, all of which will be owned by the Government. The Government will then be able to offer their shares for sale to the public and thus privatise the successor company.

The Bill does not dictate the timing of the privatisation. That will depend on the market and the performance of the company. Our clear intention, however, is to return British Steel to the private sector as soon as possible. Nor does the Bill dictate the form in which British Steel will be privatised. We have, however, made it clear that we intend to privatise the successor company as a single entity and in its present plant configuration.

The Bill essentially provides therefore for a change in the legal status of British Steel from a public corporation to a public limited company. While the successor company will technically be a different person in law from the corporation, the intention of the Bill is that it should be regarded for all practical commercial purposes as the same company. The change brought about by the Bill is not intended to affect the commercial activities of British Steel nor the extent of its assets and liabilities

To complement this change of legal status the successor company will require a capital structure which is compatible with the requirements of the Companies Act. Clauses 2, 3 and 7 of the Bill provide for that capital structure and it may be of assistance to noble Lords if I briefly explain those provisions.

Clause 2 provides for the reduction and subsequent extinguishing of the public dividend capital of the corporation. A reduction in the corporation's capital is necessary to write off accumulated past trading losses and thereby achieve a balance sheet which more accurately represents the present value of the net assets of the company. It is important to understand that the accumulated losses are not debts. We are not talking about money that is owed to someone; we are concerned with losses which have been made in previous years, the accumulated total of which is recorded in the corporation's accounts.

It is open to any Companies Act company to apply to the court for a reduction in its capital in order to eliminate such losses, to enable it to pay dividends and, in the case of the successor company, to ensure that it may be registered as a plc. Since the corporation as a nationalised industry cannot apply to the court for such a reduction, this will be authorised under Clause 2 of this Bill.

The remaining public capital will then be extinguished, and will be replaced by securities issued under the provisions of Clause 3 by the successor company to the Government. To the extent that the total nominal value of the securities issued to the Government is less than the amount of the public capital extinguished, the balance will go to form a reserve, called the statutory reserve. The uses to which this reserve may be put are specified in Clause 7 of the Bill.

The statutory reserve is not a cash fund; it is a book-keeping entry which serves the primary purpose of ensuring that the balance sheet balances. Private sector companies generally have a mixture of share and loan capital and reserves. The process of restructuring the balance sheet of the corporation is, as I have said, complementary to the vesting provisions of the Bill. Instead of—as we have now—a nationalised corporation funded by public dividend capital, the successor company will be a Companies Act company with capital and reserves.

I must make it clear that the rearrangement of British Steel's capital structure prior to privatisation does not contain any element of subsidy nor does it contain any element of write off of debt. No cash changes hands as a result of the provisions I have described and the successor company is obliged to inherit all of the liabilities of the corporation.

The remaining provisions of the Bill are subsidiary and technical and I do not propose to delay your Lordships by discussing them further now. They are generally well precedented by previous privatisation legislation. My department will make available full explanatory notes to anyone who is interested or concerned.

Your Lordships will be aware from my previous statements to the House on this and other matters that my department is committed to the promotion and regeneration of enterprise in this country. We are firmly of the belief that nationalisation and public ownership of industry are inimical to the growth of enterprise.

The Morrisonian type of state corporation—a relic perhaps of a bygone era—is a cumbersome and unwieldy structure. It has been proved to be fatally flawed in that the different imperatives of the commercial and political worlds (to both of which it is subject) cannot be satisfactorily reconciled. That has been amply demonstrated by the history of the British Steel Corporation, and I think that most people would now accept that state ownership is unlikely to promote the efficient and competitive manufacturing of goods for the international market.

Not only is the political control imposed on state corporations inappropriate, but there also grew up a belief that governments could afford to ignore the market, and indefinitely maintain outdated excess industrial capacity. Again and again the history of the British Steel Corporation illustrates the folly of such a belief. It is simply not within the power of governments to roll back the tide of market forces and to preserve industries in a static form. The lessons have been learnt, and learnt painfully, that the only guarantee of success is to respond quickly and flexibly to the market, and to produce goods that customers want to buy at prices they are willing to pay.

British Steel fully understands that fundamental truth, and I congratulate the management and workforce of the corporation on the excellent results they are now achieving. Yes, it is true that the remarkable turnaround in the corporation's fortunes has been achieved within the public sector; but that has been achieved despite public ownership, not because of it. The Government have sought as far as possible to give the corporation the freedom to get on with its business and not to interfere in its commercial decisions.

The foundations of success have been laid and the first profits built upon them. But this is not the time for complacency. We must look to the future. The European steel market is well on its way towards complete liberalisation. It will come as no surprise to your Lordships that the internal market will be complete by 1992. Third world steel producers are increasingly making their presence felt. If British Steel is to prosper in this increasingly competitive environment, as I am sure it will, it must have the freedom and flexibility to take swift decisions, to adapt to the changing needs of the market-place, and to take risks; in short, it must be enterprising.

As I have said, I believe that public ownership inhibits the spirit of enterprise. The benefits that the Government's privatisation policy has brought to the economy are plain for all to see. This Bill is the first step in the process of privatising British Steel. As a private sector company, British Steel will be free to grow and prosper and to play its full part in contributing to the wealth of our nation. I beg to move.

Moved, That the Bill be now read a second time. —(Lord Young of Graffham.)

11.46 a.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the Secretary of State for taking us through the Bill and for explaining some of the thinking behind it. I was grateful to him also for clearly specifying that the point of the Bill was to prepare for privatisation, although the Bill itself, as he remarked, is just a vesting Bill making sure that a public corporation becomes a plc.

I am afraid that the noble Lord has failed to persuade us of the reasons for the change of ownership. He said clearly that the British Steel Corporation has done extremely well in the last two years under public ownership. He went on to say—I do not think I misquote him—that this was because the Government gave the British Steel Corporation freedom to manoeuvre and freedom to react to market forces. We on our side see no reason why this should not continue. I have yet to hear from any government Minister anything other than what I would regard as somewhat weary platitudes about the Government not being involved in any kind of industry.

If I were turning the argument on its head and the British Steel Corporation were now private and we were considering nationalisation, I believe I might even take the same view. This was not the case in 1967 when 14 companies were brought together. I believe it was right to do that under public ownership, but if a company is running successfully in the national interest and if it is in a competitive environment, as British Steel is and will continue to be, I do not see any great reason for changing ownership simply for reasons of dogma.

Since 1984–85 the British Steel Corporation has been a substantial success story. In productivity, just to take the Lanwern works, labour productivity to produce a tonne of steel has gone from eight hours to 2.8 hours today, and Scunthorpe is now at 2.86 man hours per tonne. In terms of export growth the 1986 overseas receipts came to about £1 billion. British Steel was the ninth largest foreign exchange earner in industry. In 1987 approximately 36 per cent. of total output was exported.

In technology British Steel has shown itself to be a world leader. The blast furnace at Redcar, for example, was rebuilt in 1986 right on time. In fact, it was put into commission slightly early. The Port Talbot hot mill in 1987 was commissioned early and without substantial teething troubles. In terms of product quality, there have been certificates of quality signifying complete confidence from some of the major steel consumers in the world who are operating in the international market, notably Caterpillar and Gillette. On reliability of delivery, customers now take it for granted that orders will be delivered, will be delivered on time and to the required specification.

I do not think anybody would now say, as they used to say of the British Steel Corporation, that it is the sick man of the European steel industry. In fact there is good reason to suppose that it may be the world's best steelmaker at present. By any standards the British Steel Corporation is now a success and this must be due to every person employed in the corporation, manager and workforce alike. One cannot say too often how much they have contributed and at a considerable price in terms of employment (we have to recognise that) to the present success.

So why are we now discussing the possible change of ownership which will upset an equilibrium which has produced such a success? We are doing it because the Government wish to do it and the Government have secured a majority for the Bill in another place. In your Lordships' House we have to accept that that will happen. I wish to point out some of the problems with privatisation, as we see them, that we shall be exploring in Committee.

There is the future of Ravenscraig. When the noble Lord made a Statement we had a short exchange about Ravenscraig. When my noble friend Lord Carmichael of Kelvingrove winds up from these Benches he will be referring to Ravenscraig in much greater detail. Secondly, why should the corporation be privatised as a single unit? We believe that there is need for a full and frank discussion of the pros and cons. We expect to go into that in Committee.

Thirdly, there is the problem of the quasi-monopoly position of British Steel. I accept that that question is linked with the future of the European steel industry and integration in Europe—indeed the integration of the steel industry on a worldwide basis and competition from Korea and other countries. That in its turn is linked to the sterling-dollar and sterling-Deutschmark rate particularly. It is said by a number of experts that in Europe there is a surplus of steel-rolling capacity of approximately 30 million tonnes. It is also said that there is a world overcapacity of approximately 100 million tonnes. We must be quite clear that reductions in capacity—if they occur, as they certainly must at some point—do not affect the operations of British Steel merely because it is privatised.

Steel is a particularly interesting form of primary industry because in the early stage it suffers from a downturn in the inventory cycle. When steel users see the projections of their sales for the future and they see a possible downturn, the first thing they do is to cut stocks of raw materials. Steel immediately feels the effect of that process. It is a most cyclical industry. Part of the problems that were suffered by the British Steel Corporation in the 1970s and early 1980s were due to that early attack on the steel industry as a result of turndown in economic activity. We must be clear in our minds that privatisation will not damage the status and activities of British Steel if such a downturn occurs.

We shall next wish to discuss in Committee at some length the question of the golden share arrangement. We shall wish to know exactly what the Government are proposing, what they proposed in another place, how it will work, whether the five-year limit is satisfactory, whether it is right to include that in the articles of association and what the status will be. I suspect that we shall ask for a preliminary draft of the articles of association of the successor company.

The next problem which we shall examine is that which was described by the Secretary of State. It is the writedown of public dividend capital. It is true that a company can go to the courts and write down its capital. It is true that after shareholder approval it can go to the court and reconstruct its capital in whatever way it wishes. The Companies Act is most flexible on the matter. Nevertheless, I am not entirely happy that the funding of the losses of British Steel, which was achieved through public dividend capital, should be entirely written off without some repayment, and possibly a total repayment, to those who provided the capital; in other words, the taxpayer. We shall be looking carefully at the matter to see whether that can be achieved.

According to the estimates of some analysts the Government will receive approximately £2 billion as a result of privatisation. I shall not insist on the figure; that is give or take the odd £100 million. Clearly that is nothing like the money that the taxpayer has put into British Steel to ensure that it is the success it is today. In that connection there is an issue which we must examine in Committee.

It was said in another place that the reserve created by Clause 7 of the Bill will be the equivalent of a share premium account. I am not entirely convinced that that is correct. I understand the clause; it can be paid out only in the form of bonus issue to existing shareholders. However, we shall wish to look carefully at that matter to make sure that it is not in the form of a simple distributable reserve.

All those are questions which we shall be probing at the Committee stage. However, they are questions of detail. The main questions which the Government still must answer are these. If it is not broken, why fix it? Why should we change the ownership of the company? Until we receive a satisfactory answer to those questions we on this side of the House will continue to believe that enterprising public ownership is a perfectly valid formula and that the British Steel Corporation should remain in its present ownership. Consequently we shall oppose the Bill.

11.56 a.m.

Lord Ezra

My Lords, for many years I was involved in an industry closely associated with the steel industry. I was able to witness at first hand the debilitating effect on the steel industry of the continued changes of ownership. I believe that it is a remarkable testimony to the ability of the present management that with that background it has achieved such a remarkable turn-round.

The noble Lord, Lord Young of Graffham, has explained that that turn-round has been due not only to the skill of management but also to the fact that the Government have tried to minimise their interference. That point was seized upon by the noble Lord, Lord Williams. As one who suffered from various government interference during my previous activities in a nationalised industry, I believe that that is a good development. Therefore in passing I should like to ask the Minister whether the same self-denial will be and indeed is being practised in relation to the remaining nationalised industries. I have in mind particularly the railways and coal. Who knows whether in this era of governmental self-denial, combined with the undoubted efficiencies in management, those two great enterprises may not soon break into substantial profit?

If there is to be a further change in the ownership of the steel industry—this will be the fourth in the past 40 years—we shall all need to be absolutely convinced that it is not only a sensible course to take but that effectively in our lifetimes it would be the last change. For it to be just another change to be followed by a further change at some later date would not be a serious way to look at one of our basic industries.

The noble Lord, Lord Williams, has expressed doubts as to whether a change is at all necessary. I do not go quite as far as that. I believe that one can approve of it if the change now contemplated can clearly be demonstrated to be in the interests of the industry and its customers, and if it can be regarded as having a long-term prospect ahead to enable the industry to utilise its undoubted technological skill and managerial talents.

I should like to deal with the question of timing. The noble Lord, Lord Young, said that the Bill does not lay down the time when the privatisation would take place; this is merely a first step. I believe that timing will be of great importance. The timing which is chosen must be in the best interests of the industry to enable it to perform its tasks. I doubt very much whether the present time is such a time, if that were being contemplated.

As the noble Lord, Lord Williams, has pointed out, there is still an overcapacity of steel-making in the world, particularly in the European Community. As regards the Community, a quota system is still in place and the form in which that system will be dismantled is by no means clear. Furthermore, the British steel industry has a substantial debt. The Minister pointed out that it will be no part of government policy to reduce the debt before privatisation. The industry will carry it forward. Should it not be given a little more time in which to reduce it before privatisation through its now profitable operations?

I believe that these are all questions that should be raised. In addition to the points raised by the noble Lord, Lord Williams, I believe that it will be proper to consider in Committee some of the points that I have just made. We are concerned with the future of one of the great industries of Britain.

Over the past 40 years it has been through a most turbulent time largely because of successive political interventions. The kind of future that we should like to see for the industry is one in which political intervention would be kept to the absolute minimum. The kind of structure that we should like to see is one that could be preserved in its basic features for years ahead. Obviously there would have to be changes from time to time to meet changing external circumstances. That should be the objective of our inquiry and, therefore, we shall be raising a number of detailed points in Committee in order to elicit the views of the Government on these points.

12 noon

Lord Diamond

My Lords, I start on common ground, which is always a good place from which to start. Every one on all sides of both Houses has given nothing but praise to the management and employees of this industry for the remarkable turnround in its results and for having demonstrated that it is now a reliable, viable company making good steel, good exports and good profits.

The conclusion that I draw is that, given good management, one can secure good results whether the organisation is managed under the public or the private sector. This is not the only example we have, as everyone knows. The Government's conclusion is quite different. The Government conclude that inasmuch as the corporation has demonstrated its capacity to win not only domestic praise but worldwide praise for its achievements, it should immediately be privatised. The logic of that escapes me.

I further criticise the Government for their decision that the industry should be privatised immediately, notwithstanding that clearly that was not planned. It is neither referred to specifically in the manifesto for the last election nor even in the Queen's Speech for this Session. It was not fully prepared. For example, no time has been allotted for an examination of the alternative methods of privatisation so as to avoid a private monopoly, which is what the Government are proposing, notwithstanding that the financial market conditions are still very flat and notwithstanding that the legislative programme is already far too heavy. I am sure that your Lordships will recognise that and sympathise with my remarks.

The Secretary of State has made no case whatever for privatisation at the present time. Therefore, the sole conclusion that I can draw for this hasty action is obvious: namely, to keep the receipts from privatisation rolling into the Treasury so as to enable the Chancellor of the Exchequer to continue his tax reduction programme. However, because the Government have not justified the present step does not mean that no case can be made out. Provided that the timing is right and given a full examination of the best method of achieving effective competition, I believe that a case can be made out on the ground of motivation.

Perhaps I may explain what I mean as it is a matter of some importance. I take the view that what makes for efficiency in any undertaking is the fullest motivation of men and management concerned. That means a combination of personal financial reward and a sense of service to one's community. Both elements are present, albeit in varying proportions. In some spheres such as the Civil Service or the defence services, the dominant motive of those attracted to these services will obviously be service to the community. Therefore, the natural place for such an activity is in the public sector. Similarly, in straightforward commercial activities the personal reward, the profit motive, will be the dominant factor; hence, the natural place will be the private sector.

Steel seems to me to come into that second category and to fit best into the private sector. That does not mean that steel production is not a matter for public concern. On the contrary, any country desiring a strong economy will need its own steel-producing capacity. Just as it was right, in the interest of defence, for a Tory government to transfer an ailing Rolls-Royce into the public sector until it was strong enough to be returned into the private sector, so it was right for a Labour government to nationalise an ailing steel industry in order to maintain domestic steel production. Indeed, had that not happened there might well be no domestic steel industry left to discuss today. The measure of that need for protection is the several billion pounds that have gone into safeguarding its future.

Therefore, I conclude that the Government are right in principle to return steel to the private sector. However, I must say that it is no credit to the Government just because every time they consider a nationalised industry and dogmatically decide to privatise it that they should, on rare occasions, happen to be right. Nor is it any credit to the Government that they should attempt to do so prematurely. I say prematurely for the reasons I have already given, three of which are self-evident, and the fourth, that of being unprepared, is demonstrated by the fact that the issue of the golden share, in spite of its importance in protecting the new fledgling industry and in spite of continual pressure on the Government to make up their mind, was only decided three months after Second Reading.

Of far greater importance is the fact that the Government have not given themselves time to examine the various options and to come forward with their considered proposals for enhancing competition. Instead, in spite of the lip service so recently paid to the promotion of competition, the Bill simply provides for the transfer of a public monopoly into a private monopoly. Whatever may be said about competition from abroad, the fact remains that the British Steel Corporation will be a monopoly under the law. Clearly, we must return to both these issues in Committee.

It will also be necessary in Committee to consider much more closely the rights of employees. I know it has been said that the rights of employees are protected because their rights are automatically transferred to the new company which has to take over all the liabilities of the existing corporation. That is not a fair statement of the case. The new company is a plc and the "l" stands for limited. The new company will have a limited liability. In the present circumstances any pensioner who is in trouble over his pension claim will be able to sue an employer which has no limited liability. In the new circumstances if, for example, total steel demand drops unexpectedly and the company finds itself in difficulties, the pensioner will have a right to sue a liquidator to recover whatever he can out of the liquidation. That again is a matter which we shall have to consider very carefully when it comes to the Committee stage.

Therefore, we are left with the conclusion that the dominating factor has been the need to maintain the flow of privatisation receipts for the purpose, as we all know and as has been declared so many times, of enabling the Chancellor to continue his programme of tax reduction.

As I have said many times, there is nothing wrong in selling the nation's assets if one reinvests the proceeds for the benefit of the nation. Perhaps I may paraphrase rather freely what has been said recently in high places. What matters is what one does with the wealth so acquired. We know the answer: it is to reduce taxation in such a way that those with the largest incomes benefit most, so that the gap between the well-to-do and the needy is widened once more. That is where the Tory philosophy of today leads. Thank heavens, it finds no place in the philosophy of my party!

12.10 p.m.

Lord Wyatt of Weeford

My Lords, I feel that I must say a few words at the start of the funeral rites of steel nationalisation. There is no happier mourner than myself. During the 1964–66 Parliament the Labour Government had a majority of three. Desmond Donnelly and I knew that the nationalisation of steel was doctrinaire dogma which would cost the nation many thousands of millions of pounds, which indeed it did. We were able to force the Government not to nationalise steel during that Parliament. They had to wait until Labour won a substantial majority in 1966. Therefore, I suppose that between us we saved the nation about £300 million by that delay.

Nationalisation was the disaster that we predicted it would be. Actually, the majority of the Labour Cabinet knew that it would be, too, but they were too frightened of their ideological supporters to stop it. The old and charming theologian, Nye Bevan, had vividly but mistakenly described steel as one of the commanding heights of the economy which must be taken over by the state if the nation were to be prosperous. In those days to be against nationalisation of steel in the Labour Party was like a cardinal of Rome declaring a disbelief in the Virgin birth. However, I gather that Mr. Kinnock is now discouraging that approach, though the news does not yet seem to have reached the noble Lord, Lord Williams of Elvel. However, it is too late now for Mr. Kinnock to welcome me back into the Labour Party.

For long periods British Steel was losing £2 million to £3 million a day of the taxpayers' money. The record was achieved in 1980 when it lost £1.8 billion, including an operating loss of £700 million.

There was great interference by government even before nationalisation. Steelworks were started in the wrong places for political reasons in order to catch votes. For instance, the late Lord Stockton had the interesting idea for half a strip steelworks in Wales and the other half in Scotland. The management was not allowed to manage while there was a Labour Government—that is the answer to the noble Lord, Lord Williams of Elvel. It is only since then that management has been allowed to manage. If the industry ever fell back into the hands of the noble Lord and his friends, once again it would never be allowed to manage. The losses need never have been so high.

But since 1980 there has been a new atmosphere. Under Sir Ian MacGregor, Sir Robert Haslam and Sir Robert Scholey, management has been urged to do what it believes is right and to take no notice of foolish politicians. Sir Robert Scholey deserves particular praise because throughout that period he was also the chief executive. He has done a wonderful job. He is a steel man born and bred and he remains so today. He wants the industry privatised, too.

British Steel has become a success story. Over the past three years it has received no money at all from the Government. Now it would like the commercial freedom to operate nationally and internationally that privatisation will bring.

Never again will British Steel be a charge on the taxpayer. As the noble Lord, Lord Williams of Elvel, said, it is now the cheapest producer of steel in Europe and possibly anywhere in the world. That is because management has been allowed to manage as it never was before—certainly not under a Labour Government. It will now build up wealth for its shareholders and for the nation. I am sad that Desmond Donnelly did not live to see the return of steel to the private sector. I feel that I am speaking for him as well as for myself in saying how delighted I am that this day has arrived.

12.15 p.m.

Lord Morton of Shuna

My Lords, I wish to speak about the Scottish aspect of British Steel and the effect of these proposals on industry in Scotland. The noble Lord, Lord Wyatt, surprised me because I thought there was, or had been, a finishing mill at Gartcosh which dealt with the strip from Ravenscraig. I had the impression that Gartcosh is in Scotland and not in Wales. It was only recently in the term of this Government that Gartcosh was closed and the strip has to go to Shotton for finishing. However, perhaps I am wrong and Gartcosh was always in Wales and we never recognised it.

The privatisation proposals appear to us to contribute nothing to the efficiency or competitiveness in the form that is proposed because, as has already been said, it is replacing a state monopoly with a private one. As noble Lords will be aware, there is a deeply-held view in Scotland that the Government and the present management of British Steel—perhaps also the noble Lord, Lord Wyatt of Weeford—wish to close Ravenscraig.

In another place, on Second Reading of this Bill, the Minister responsible said that that view had no basis in practice and that the management of British Steel was not hostile to the Scottish steel industry. However, if one looks at the facts it is very difficult to substantiate that view. The management has said again and again to committees in another place and elsewhere that they see no long-term future for more than two flat product mills. There are, of course, three; namely, Port Talbot, Llanwern and Ravenscraig. Over the past few years Port Talbot and Llanwern have benefited from major long-term investment at very high cost. There has been very little investment at Ravenscraig. What there has been has been investment which would pay for itself over two or three years and which was necessary in order to keep the plant going. The major investment that is required on such items as the coke ovens is not forthcoming. Investments that would require 10 years to pay for themselves are being ignored.

Because of the lack of investment in the coke ovens, Ravenscraig is using up its coke at a greater rate than it can produce it and so is diminishing its stock. It is difficult to see that management consider that Ravenscraig has a future. The guarantee that the Minister gave when he announced the privatisation is only that the hot mill at Ravenscraig will exist until 1989, which is when the continuous casting plant at Llanwern becomes fully operational.

In the debate in another place the Minister at no time denied that the hot mill at Ravenscraig is to close next year. He has never denied that without the hot mill there is no long-term future for either Ravenscraig or Dalzell. There is no possibility of keeping those plants going merely to produce slab steel. It is for those reasons, which I have briefly summarised, that the Scots are very anxious indeed about these proposals.

Assuming that privatisation is to go ahead what are the alternatives? There is the possibility of introducing competition. British Steel will be a virtual monopoly in the production and marketing of steel. Why not introduce competition—a concept to which the Government so often pay lip service? They only pay lip service to that concept because this measure is not introducing any competition.

The Arthur Young report suggests that a Ravenscraig, Shotton, Dalzell combination as a separate entity competing with the rest of British Steel would be a viable proposition. That has been attacked by the Government because it is opposed by the unions at Shotton. It is rather new for the Government to suggest that they are dictated to by the unions. It also seems to ignore the views of the unions at Ravenscraig. Are the unions at Shotton to be regarded as more valuable than the unions at Ravenscraig and, if so, why?

The report is also attacked because the Government and British Steel refused to give Arthur Young confidential information. I agree with what the Conservative Member from Eastwood said—that that really is no defence when the Government will not reveal any of the information or say that any part of the Arthur Young report is wrong. It is also no defence when Sir Ian MacGregor whom the Government seem to regard as having had some experience in the steel industry and perhaps having done a good job, says that cost estimates can be synthesised from standard industry sources. That is just what the Arthur Young report has done.

But even without competition British Steel at the moment is running all its plants at full capacity and it has been doing so for some time. In addition it has been importing large amounts of strip plate and processed steel. It seems that at the moment British Steel can produce only about 60 per cent. of the United Kingdom's strip needs. That is partly due, no doubt, to the European Community quotas; but they presumably will not last for ever.

The desire to close Ravenscraig hot mill is not based on a lack of demand, at least not so long as the pound stays at a realistic level. It denies opportunity for the quick responses that the Minister said that the privatised firm would have because it is really a minimalist approach. It is being assessed on the basis of the minimum production that British Steel considers at the worst level it will require.

British Steel sells steel to Scottish users on the basis of transport costs out of Glasgow. If Ravenscraig closes will transport costs still be assessed from there, or will they be assessed from South Wales? The demand for steel in Scotland is projected to increase from the 1990s onwards, largely due to an upturn in oil-related work. Will steel users turn to foreign steel? If so, what effect will that have on the balance of payments?

It may be suggested that Ravenscraig is far from the market and from the ports. But that is not true. Strip has to travel from South Wales to Shotton or from Ravenscraig to Shotton, and those are similar distances. Hunterston to Ravenscraig is a similar distance as Port Talbot is to Llanwern. But Hunterston is a deep water facility which can take far larger quantities of materials than Port Talbot ever could.

British Steel is already the largest importer of steel in the United Kingdom. In a monopoly position it will be able to exert tremendous power on other steel stockholders. Why should it continue to manufacture steel at all if it can increase profit from its stockholding by not producing but by importing? Is that in the best interests of the United Kingdom? Is it in the best interests of industrial users of steel in Scotland?

If steel has to be privatised, surely it should be done on the basis that it is creating competition and not a monopoly? Surely the Archbishop of Canterbury is right to say that while wealth creation is good it should be for the service of the common interest. If we are going to ignore the interests of Scotland altogether, is that not a bad reason for doing it this way?

Even on purely economic grounds, if the Government do not care for any other grounds, is it not necessary to take into account the figure of 12,000 who will be unemployed if Ravenscraig is to close, because that has a sheer obvious economic cost to the Government? That should be taken into account. On the basis of this privatisation there is deep worry in Scotland.

12.25 p.m.

Lord Carmichael of Kelvingrove

My Lords, this has been a debate which shows that we shall have a most interesting Committee stage on this Bill. I look forward to that. A great deal of material has been produced both in another place and by outside bodies on the whole question of this privatisation. Some of the speeches we have heard today were very knowledgeable on the subject. After the speech of my noble friend Lord Morton of Shuna there is little that needs to be said about Ravenscraig. He has been most analytical and he made a very powerful speech altogether.

British Steel and steel has always been an emotive question in Britain to all parties. It was at one time very high on the present Government's privatisation list. But it was not even mentioned in the election manifesto or even, as the noble Lord, Lord Diamond, said in the Queen's Speech. Having listened to the noble Lord, Lord Wyatt of Weeford, and having been there on the night when he and Desmond Donnelly refused to vote on the issue, it makes me wonder how he fought the 1964 election. That issue certainly appeared in the Labour Party manifesto in 1964. At that election he won his seat, but after that he soon changed his mind about this matter.

Lord Wyatt of Weeford

My Lords, I do not know how the noble Lord can suggest that I changed my mind. In 1962 I wrote a long article in the New Statesman and Nation saying that on no account should steel be nationalised as it would be a disaster for the country and for Labour. I made it quite clear to my constituency party and to the voters in my constituency that I was going bitterly to oppose the nationalisation of steel because it was ridiculous. I did not deceive anybody, nor did I change my mind.

Lord Carmichael of Kelvingrove

My Lords, I am in no doubt that the noble Lord did write a pamphlet about this subject. I have one or two of the pamphlets that he wrote for Tribune just a little earlier. They made interesting reading too. The noble Lord fought the election undoubtedly on the 1964 manifesto. I do not know whether that manifesto contained an opting out clause. I certainly did not have one when I fought the 1964 election.

But when British Steel announced good half-year profits of £190 million the Government made clear their intention to privatise the industry. That profit of £190 million for the half year followed a whole year profit for 1986 to 1987 of £187 million. The profit had more than doubled. As the Minister for Trade and Industry made clear in his statement in another place on 3rd December: This is an impressive improvement in the corporation's performance".—[Official Report, Commons, 3.12.87; col. 1107.] The Bill before us today does not tell us a great deal about how the Government see the future of this basic industry, except to say that the corporation would be floated as a single entity. The Ministers on the Front Bench opposite will be familiar with our bemusement that, when an undertaking has become successful, usually by the injection of a great deal of public money, the Government decide that the private sector can then take over and reap the benefits.

I believe that the noble Lord, Lord Diamond, dealt with that aspect of the matter very fully when he said that as the industry was doing so well he did not see the need to privatise it, unless the money received from privatisation—as it has been put in other cases "selling the silver"—will be ploughed back into the pocket of the nation.

We suggest that British Steel is more than just another company. It is in every sense of the word a strategic industry which despite 1992, and our greater involvement in Europe by that date, must remain within the control of the United Kingdom Government. We do not know in detail what will happen to the quotas in 1992 in Europe, although this is probably something that will come out. They may even be totally abolished. However, I find it most difficult to believe that Germany, Luxembourg and France will completely accept the elimination of such quotas. Nevertheless, the Minister will be able to tell us whether any of the European steel-producing countries have allowed, or are likely to allow, any meaningful part of their steel industry to be controlled by outsiders. However, I think that theme has already been dealt with by many other noble Lords in today's debate.

The House will perhaps remember the debate on the privatisation of the British Airports Authority, when the issue of the golden share was discussed and an amendment was put forward by my noble friend Lord Underhill and myself. The arguments raised in that case apply equally to the case of steel privatisation. Briefly, it was felt on all sides of the House, and reinforced by a most powerful speech by the noble Lord, Lord Boyd-Carpenter—unusually in support of the noble Lord, Lord Underhill, and myself—that a foreign owner of the British Airports Authority, who also had interests in major Continental airports, could make the decision to cut back on investment—an example was given of Heathrow or Gatwick—in order to make his own personal neighbourhood airport. It must be recognised that such people are swayed by political pressures just as much as people on this side of the Channel. It was further suggested that such a person could allow British airports to deteriorate so as to make the neighbouring airports—such as Schiphol, Paris or Brussels—more profitable and desirable.

In my view, the same argument applies to steel. It would be quite easy for a sufficient foreign ownership to obtain control of British Steel and allow it to run down to their benefit and most certainly to the great detriment of the British people. In another place the issue of the Kuwaiti stake in British Petroleum was raised. It was suggested that the Government's apparent indifference to what was happening to British Petroleum was not a good omen for this type of flotation. The suggestion was made that something more akin to the Rolls Royce solution should apply—namely, the possibility of using the 15 per cent. limit on overseas shareholding—which would be much more likely to be effective. The noble Lord, Lord Williams of Elvel, raised the matter and I think it is one that we shall undoubtedly return to.

We should like to know whether the Government accept that proposition as an important protection to allow this industry, which is vital to our defence and our industrial interests, to remain within British control. The steel industry has always been cyclical. We must endeavour to produce a solution, whether or not it is within privatization—which in any case the Government, with their majority, will obviously have—to ensure that in the long term the investment needs of the industry are secure.

I now return to the speech of my noble friend Lord Morton of Shuna. He pointed out the problems of Ravenscraig and the fact that the coke ovens are producing only because of the heroic efforts of the workforce and the technical people involved in the works. It would be so easy for Ravenscraig to be undercapitalised and therefore become a candidate for closure. I suggest that that could happen to the rest of the steel industry in Britain if it so suited a private ownership and if they were allowed to sell their shares in British Steel abroad and thereby lose control of the British steel industry.

I think that is just as doctrinaire as was the suggestion that we were anxious to nationalise in 1964. It has been said by many people that the 14 companies were in an absolutely chaotic state and therefore it was vital that they should be pulled together. I am open to the idea that now that British Steel is in a much better and healthier position, because of an enormous investment of taxpayers' money and great effort on the part of management and workforce, new methods other than the Morrisonian method of overseeing are necessary. I think we all realise that there were great deficiencies in that method. Looking back to the time of those chaotic industries, such as British Steel and British Rail, it was the only way to solve the problem. However, we have moved on from that stage and we should like to discuss some of those methods in Committee.

12.35 p.m.

Lord Beaverbrook

My Lords, we have had a most interesting debate this morning and I am most grateful to the noble Lords who have participated in it. The British Steel Corporation has often been the subject of debate in this House and, all too frequently, at times of difficulty for the industry. However, I am happy to say that the Bill now before us will be the first step in taking British Steel out of the hands of politicians and returning it to the commercial domain where it truly belongs.

The noble Lord, Lord Williams, mentioned several issues to which we shall no doubt return in Committee. Of course they are important issues and will be explored here as indeed many have been explored in another place. However, I should like to respond especially to the noble Lord's question concerning the reasons for privatisation. The noble Lord intimated that in his view there was no other reason for privatisation than a matter of ideological theory—ideological dogma. I cannot agree with him. I sincerely believe that the history of the steel industry over the past 40 years represents the clearest possible reason for the Government's desire that this great industry should sit in the private sector. On the one hand, the industry must be spared the burden of political interference; on the other hand, if it is to prosper and flourish, it needs the freedom and the flexibility of the private sector. The Government fully accept the vital importance of the nation's steel industry.

The noble Lord, Lord Carmichael of Kelvingrove, mentioned that he believed steel to be a strategic industry; of course it is a vital industry. It is our strong belief that a return to the private sector will enable it to play the fullest part in continuing the wealth of our nation. The sooner the steel industry is no longer a football between government control, the private sector, back to public ownership and now privatisation (its fourth move), the better. In our view the industry should sit in the private sector where managers can manage and where they are freed from the constraints and other pressures of government.

I turn now to the speech of the noble Lord, Lord Diamond. I am most grateful to him for his praise of the industry: producing good steel, a good level of exports and good results. The noble Lord asked whether there were any alternative methods of privatisation, perhaps to avoid what he described as a "private monopoly". I must say that in the steel industry in this country there is considerable competition, and British Steel will remain subject to the discipline of competition. After all, consumers will continue to be free to buy their steel from foreign producers.

Where appropriate, regulatory regimes have been set up in other privatised industries whereby the company concerned has had a legally protected monopoly. However, British Steel has no such monopoly, and a regulatory regime is therefore inappropriate and unnecessary. British Steel is already subject to European Coal and Steel Community rules. Within the Community we are working hard towards greater liberalisation of the steel market in Europe. This is the point raised by the noble Lord, Lord Carmichael.

Lord Diamond

My Lords, is it not the case that British Steel plc will control more than 25 per cent. of the production of steel? Is that not under the law as it stands a monopoly?

Lord Beaverbrook

My Lords, the production of steel in itself I do not believe to be a monopoly under the law. There are other overseas producers which are already well represented in this market. It is a completely different case from that of the earlier privatisations such as British Telecom.

I was about to say to the noble Lord, Lord Carmichael, with regard to his point about 1992, that all steelmakers are subject to normal Community rules and our own competition rules. Therefore I believe that there are adequate safeguards. I should like to say that 1992 is going to impose challenges for the industry and for British Steel. We believe that taking away the restraints of government from the industry will help in the industry's preparation towards that very important date.

The noble Lord, Lord Diamond, made a point which I have heard him make on a number of previous occasions about the Chancellor of the Exchequer needing the receipts and using them in order to reduce taxation. I believe that the way the economy of this country has improved in the last few years is an excellent example of the very great benefits from lower taxation. The economy is going again and it is going because the people that are the shakers and the movers are motivated and doing what they are best at.

I understand the concern of the noble Lord, Lord Morton of Shuna, about the Scottish position and that that concern is uppermost in his mind. British Steel has given its commercial assessment of its requirements based on an honest and thorough assessment of future market demand. In the December statement British Steel said that it expected that, subject to market conditions, there would continue to be a commercial requirement for steelmaking at Ravenscraig and at the other integrated plants for at least seven years.

At the end of the day employment is ultimately only protected by successfully meeting the changing requirement of the market. British Steel is profitable now because it has taken the necessary steps to produce good quality steel. It needs to be free to continue its efforts to be as efficient a steelmaker as possible if it is to maintain its present position. We can be quite sure that its foreign competitors are not standing still.

The corporation has made it clear that subject to market conditions there will continue to be a commercial requirement for steelmaking at Ravenscraig for at least the next seven years. The exact level of output will obviously depend upon the exact level of market demand that has to be set, but the assurances given in the December statement stand today.

I should like to add one further important point with regard to the issue raised by the noble Lord, Lord Morton of Shuna. He asked about investment in Ravenscraig. British Steel has invested steadily in all of its plants over the years, including the recent £15 million investment in coal injection facilities at Ravenscraig. There is no question of there having been a deliberate run-down of Ravenscraig.

Lord Morton of Shuna

My Lords, will the noble Lord not accept that that investment at Ravenscraig is merely a stop-gap measure and cannot he regarded as a long-term future for the coke plant, where much more basic renewal is required than this stop-gap which will hold together for only a few years?

Lord Beaverbrook

My Lords, it is a matter for British Steel to come to a decision on what is required by way of investment in the plant, but even the Arthur Young report confirms that there is no need for any substantial capital expenditure in Ravenscraig, in Dalzell or in Shotton over the next five years.

The noble Lord, Lord Ezra, brought to our attention a number of important points. He particlarly mentioned the timing of privatisation. At the moment it is far too early to give him any assurance as to when that might happen, but we have made it clear in the past that our policy is to return the corporation to the private sector as soon as practicable. British Steel is now in a position where privatisation is feasible and it is right to take the necessary steps to enable that to happen. That is what we are doing today. The Bill, as has already been said by my noble friend the Secretary of State, does not dictate a time for privatisation but our intention is that British Steel should be privatised within the next two years and as soon as is practicable within that timescale.

I should like to welcome the support of the noble Lord, Lord Wyatt, for the measures that we are taking today. I am well aware of his past involvement and of views that he has expressed. I believe the noble Lord, Lord Ezra, said that he hoped that this privatisation of the industry would be the last time in our lifetimes that there would be any tampering with the status of the industry. This has been going on for quite a long time. The first nationalisation was not in my lifetime. I am not that young, and no doubt the noble Lord will probably outlive me. I believe that the industry will rest better where it is now going to be as a result of the Bill that we are debating today.

Lord Williams of Elvel

My Lords, I should like to ask the noble Lord a question about the draft articles of association of the new company which I mentioned. As he is aware when the Gas Bill was before your Lordships' House, we had draft articles at the time that notes on clauses were distributed. Will that be the case now?

Lord Beaverbrook

My Lords, I understand that that will not be the case but I shall look into it and let the noble Lord know the full reasons for whatever the decision will be.

The Bill is a short and largely technical one but there is no doubting its importance. I wholly agree with noble Lords who say that steel is an industry of great significance to the economy. That is not in doubt. We do not, however, consider that because an industry is important it in some sense follows that it should be in public ownership. As my noble friend the Secretary of State said when he opened this debate, public ownership of the productive sector of the economy has not delivered the success which was promised of it. Indeed the reverse is true. It has been very clearly demonstrated that government intervention cannot keep market forces at bay.

The nationalised industries would have undoubtedly been better able to cope with the changing demands of the market if they had had the commercial freedom and discipline imposed by the private sector. Steel is no exception; 30 years of movement in and out of the public sector brought it to the edge of an abyss and made it an enormous drain on the nation's resources. Happily, recent years have seen a renaissance of the commercial spirit of this country. British Steel has shown what can be achieved. The corporation has worked hard to produce what the customer wants at the right time and at the right price. It has dramatically improved its efficiency and the quality of its products. As a result, British Steel is now a world leader. The time is now right for British Steel to return to the private sector.

The private sector is the right place for a successful and dynamic commercial organisation, and that is where it would be best placed to meet the challenges which lie ahead as competition in the steel market increases. While a privatised British Steel will be owned by its shareholders, the prosperity which I have no doubt it will enjoy will benefit the whole nation. The Bill paves the way for privatisation of the corporation. I commend it to your Lordships.

On Question, Bill read a second time, and committed to a Committee of the Whole House.