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Steel Industry

Volume 15: debated on Monday 14 December 1981

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3.56 pm

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 1 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Since the competition provisions of the 1967 Act were inconsistent with those treaties, they were repealed by the European Communities Act 1972.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 the 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 increase. By mid-1980 there was hardly a steel company in Europe operating profitably.

Those 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 overcapacity 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. It is against that background that the position of the private sector in the United Kingdom falls to be considered.

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 the 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 has for some time been making representations to the Government about the extreme unfairness of the system under which it is expected to operate. The association has pointed out that steel is unique in that it has its own regime under the Treaty of Paris, something that is not applicable to any other industry.

The association has 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. It has 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 in addition provide a maximum contribution of £500 per person to the employer's 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, but 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 that we undertook 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 31 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 will 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.

The Government are determined to secure the survival of a healthy, profitable and, hopefully, expanding private sector in steel. I believe that 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.

The Opposition have supported both the private and the public sectors of the steel industry, and will continue to do so, because such support saves jobs and assists our basic industries and our economy. The Secretary of State's proposals are modest by any criteria. We want to maintain jobs and sustain capacity. We do not want to see redundancies increased and capacity reduced even further. The reduction in both the private and public sectors has already gone much too far. I hope that the Secretary of State will be able to say that his statement is not just a redundancy package, but is something far more significant.

The statement raises the crucial question of Government intervention in the whole of the private sector. While the proposals amount to modest redundancy payments of £500 to any person made redundant, they will raise a few questions and cause eyebrows to be raised in the rest of the private sector. However the statement is phrased, it amounts to Government intervention in the private sector.

The statement says nothing about imports into the European Community, which are causing great difficulty. The right hon. Gentleman's hon. Friend the Under-Secretary of State referred to this matter only last week. What steps are being taken to see that these imports are controlled in a way that is beneficial to our industry?

The Secretary of State briefly mentioned energy costs. Again, we look, apparently without hope to Government intervention in regard to energy prices, which represent one of the major costs faced by the steel industry in both the private and public sectors.

What discussions has the Secretary of State undertaken with the United States about the American market and the effect of proposed restrictions on the British steel industry, not least the private sector, which exports considerable quantities of steel to the United States?

The key paragraph of the right hon. Gentleman's statement says:
"Any payment will be conditional on a substantial majority of this industry agreeing to fund a significant reduction in capacity",
and it goes on to refer to section 406 of the Income and Corporation Taxes Act 1970. Can the right hon. Gentleman give the House more information?

Finally—[Interruption]—this is an extremely important statement, following which I am sure my hon. Friends, at least, want to hear questions put to the Secretary of State on issues where men's jobs are at stake—the Opposition will want to study the statement in more detail. I give notice to the Secretary of State that the Opposition may ask for a fuller debate on the proposals.

I am grateful to the right hon. Gentleman for this general welcome for my statement. I assure him that this is not just a redundancy package. On the contrary, we would secure the approval of the Community for this package of aids only if it involved measures for the restructuring of the capacity of the industry. Like the right hon. Gentleman, I hope that the steel industry, both the public and the private sectors, will, as I indicated in the statement, eventually be able, when the market turns up, to meet increased demand by increased production. I told the Select Committee last week that the British Steel Corporation could increase its output by up to 20 per cent. without any increase in capacity.

On the question of a general policy of intervention in the private sector, I must point out to the right hon. Gentleman that this case is unique. No other industry has had to face a combination of a substantial regime from the Community, under the Treaty of Paris, coupled with a massive subsidisation of a major public sector competitor in its own country. That is what makes the private sector of steel unique. I thought it right, as an exception to the Government's general policy of non-intervention, to come forward with this scheme.

The question of imports to the EEC from outside was the subject of a decision by the Foreign Affairs Council last week, when a negotiating mandate was agreed for the renewal of voluntary restraint agreements with overseas countries. These negotiations must now take place. We, of course, were party to that mandate.

The Government are acutely aware of the specific problem that electricity costs cause to major high-load factor users. That is a matter for my right hon. Friend the Secretary of State for Energy. The Government are considering the serious difficulty caused to parts of industry by energy costs.

The right hon. Gentleman asked about the American market. I had meetings last week with Senator Brock, the President's special trade negotiator. We discussed the difficulties that have emerged in America as a result of the suits for anti-dumping and countervailing duties. Section 406 of the Income and Corporation Taxes Act provides for a special tax relief in cases that fall within the restrictive conditions of the steel casting sector. The levy is relevant only to that separate scheme for the casting sector. We have not yet had a firm proposal, but I am considering whether it has a case for aid.

Whether there should be a debate is a matter for my right hon. Friend the Leader of the House.

I thank my right hon. Friend for his practical statement. When one bears in mind the fact that the BSC has received about £5,000 million of taxpayers' money, £22 million to help the private sector to reorganise is not excessive. I hope that this will not be the start of a continual drip feed. What steps will my right hon. Friend take to ensure that the rest of the EEC steel producers cut their production, as we have done in the United Kingdom, to allow our steel producers, both private and public, to move into profit?

I am grateful to my hon. Friend for his welcome of the measures that I have announced. A large part of the £5,000 million given to the BSC was to fund the losses and to provide for investment. Only a part went towards restructuring. I accept that substantial sums were involved. I accept also that if the European Community's regime is to be effective it must be applied fairly and firmly by the Commission to all members.

I am sorry to say that the weather disrupted the meeting of EEC Industry Ministers that I convened last week. Only one Minister managed to survive the snowstorms and reach London. It is for the Belgian Presidency to reconvene that meeting, I hope early in the new year. The purpose of the meeting will be to review progress under the June agreement and to call upon the Commission to carry out its terms in respect of all members of the Community without fear or favour so that all are treated equally.

Order. I believe that these questions should finish at 4.30 pm at the latest, to be fair to those who wish to take part in the Private Members' business. I hope, therefore, that questions will be brief.

Does the Secretary of State understand that some Opposition Members think that his statement represents, if not a U-turn, a U-swerve in the Government's realisation that intervention is necessary? There are shades of 1972 about it.

As £22 million is a modest sum, how many firms will benefit, what will be the scale of job losses and how will the miserable sum of £500 and the 85 per cent. guarantee compare with the sums that BSC workers receive?

I cannot reply to the right hon. and learned Gentleman's questions about how many firms and redundancies will be involved until the industry comes forward with schemes for restructuring and the consequences of them. The sum of £22 million is considered reasonable in the light of the likely development, but we cannot be certain about that.

Redundancy payments to be funded by the Government under the scheme amount to 85 per cent. of the statutory redundancy, plus 85 per cent. of anything above that up to a maximum of £500. If one assumes an average statutory payment of £1,500, which is right for the industry, that is an average of £800 extra and amounts to an average payment of about 63 per cent. that is funded by the Government. That is less than steel corporation workers receive, but it is fair to say that the British Steel Corporation conducted a massive investment campaign, which resulted in huge over-capacity in steel and a correspondingly large restructuring and rationalising job. In those circumstances, it was right that where there were large numbers of redundancies, sometimes in extremely painful circumstances, the sums paid to BSC workers should have been larger than the funds available to the private sector. We are talking now of a smaller scheme, and more modest sums are appropriate.

Order. If questions and answers are as long as that, many hon. Members will be disappointed.

I welcome the Secretary of State's statement, but does he accept that if more money had been made available earlier for restructuring there would not be the need now to spend money on redundancies? May I press the right hon. Gentleman further on how many redundancies are likely to occur? Has he any idea of what proportion of the money will go on restructuring and what proportion on redundancies? How many people made redundant by the BSC were re-employed?

My reply to the hon. Gentleman's first question is that I cannot add to what I said to the right hon. and learned Member for Aberavon (Mr. Morris). BSC (Industry) Ltd has been successful in placing many of its redundant steel workers. I pay tribute to the work of Sir Charles Villiers and his staff. If the hon. Gentleman tables a question about the numbers involved, I shall do my best to answer it.

I congratulate my right hon. Friend on moving so quickly to make up the deficiency in the treatment of the steel industry by the Government and the ECSC. I thank him warmly for remedying an injustice about which many of my hon. Friends felt strongly, and about which I felt very strongly, to the point of resignation. May we have an assurance that the money is not intended to include further Phoenix-type deals between the private and public sectors, but that they will be considered separately?

I am grateful for my hon. Friend's generous comments. In fairness to my predecessor it is right to point out that he instituted a system to ensure fair competition between the public and private sectors, which proved valuable and helpful until the recent collapse of steel prices in Europe. That gave rise to the serious problems that confront the private sector. I assure my hon. Friend that the money is not intended primarily for the so-called Phoenix schemes. The funding for Phoenix 1 came out of the BSC's external financing limits.

As such a large amount of public money is involved for use on a global basis throughout the private sector, which we support, and because we cannot expect a corporate plan for the private sector, may we have a general plan for reconstruction in the private sector?

I would not regard myself or my Department as in the least competent to try to draw up a structural plan for an industry that is as complex, as technological and as rapidly changing as the steel industry. That must be left to the management of the industry. If it comes up with a plan that involves a measure of restructuring, we shall help with the cost.

I welcome my right hon. Friend's statement, which I understand lessens the discrimination that has been practised by successive Governments against the private sector of the steel industry. Will my right hon. Friend bear in mind the question asked by my hon. Friend the Member for Hertfordshire, South-West (Mr. Page) and recognise that the £22 million to be made available by the end of 1984 has to be put in the context of the £6,000 million or more of public subsidy to the British Steel Corporation? Does my right hon. Friend agree that the best way to avoid discrimination between the private and public sectors is by significantly reducing the public sector subsidy? What hope can he give the House of that?

The sum of £5,000 million to which I referred relates to the period since 1975. In evidence to the Select Committee last week I said that the British Steel Corporation was on target to halve its loss this year over last year and to breaking even next year. That, of course, will lead to substantially reduced funding from the Exchequer for the corporation. We are discussing what may happen in the future in the context of the BSC's corporate plan, and certainly an element of privatisation through Phoenix schemes will form part of the Government's plan.

Does the right hon. Gentleman appreciate that, although his package will be welcome to many private steel manufacturers, not least the Alpha steel works in Newport, the real job of a Secretary of State for Industry is to announce an end to cuts in our manufacturing capacity? Is he aware that what we need now is an expansionist package?

I hope that the hon. Gentleman will have noted the announcement that the underlying rate of growth in manufacturing output is reported by my statisticians to be 2 per cent. per quarter. That is a helpful and hopeful sign. Of course, that is over a short period and we must hope that it will continue.

In the steel industry throughout Europe, in previous decades there was a substantial investment in new capacity. This is now far in excess of the market demand for steel, so rationalisation and withdrawal of capacity had to be the order of the day. What I have announced, will help the private sector to some extent instead of concentrating the help solely on the British Steel Corporation.

Will my right hon. Friend accept that many of us welcome and understand the justness of the move, but does he agree that we must aim for a return to profitability of the whole private sector, and will he bear in mind that public sector costs have borne heavily on the private sector in the last two years? Will he use his position in the Government to fight to control public sector costs in the coming year?

I understand and greatly sympathise with what my hon. Friend has said. I firmly believe that competition is the most effective way to get any organisation to keep its cost, and therefore its prices, under control. I know that my hon. Friend cheers as loudly as I do when I point out that the Government have done more to introduce competition into State industry in the last two and a half years than their predecessors did in the last 30 years.

The Minister said that he was hoping for advance, but does he accept that there can be little advance for £22 million, which could be described as too little too late? The Minister said that there had been a 28 million tonne contraction in steel capacity in Europe in the past six years, but does he acknowledge that Britain has supplied the greater part of that, and that if other countries had operated EEC policy as scrupulously and as diligently as Britain has done we might not have been facing the current level of industrial decline in steel areas?

The figure that I gave was not for a reduction in capacity, but for a reduction in output of liquid steel. The hon. Gentleman's point is perfectly fair. Under the European regime and the arrangements agreed over the last two years within the ECSC, it is essential that all countries with excess capacity should be as forthright and firm in complying with restrictions as the British Steel Corporation has been. It is the intention of the meeting of Industry Ministers—which, unhappily, had to be postponed last week because of the weather—to bring that fact home to the Commission as forcefully as we can. The Commission fully accepts its remit in this regard.

I, too, welcome my right hon. Friend's initiative, but, in the £22 million rationalisation and restructuring, is it not just as important for private sector companies, which have borne so much of the heat of the day, to feel that the BSC deals with them in an open-handed and fair manner over the sacrifices that have to be made in restructuring? Does my right hon. Friend agree that private companies fear that in talking to the BSC they go into a big den and are only mice?

My hon. Friend is right.That was one complaint by BISPA. If private-sector companies are confined to seeking help via the Phoenix schemes, inevitably they have to turn to the corporation for help. What I have announced this afternoon will give them another door to go through for sensible rationalisation and restructuring schemes.

What does the Minister mean by "a significant reduction in capacity?" Is he talking about 20 per cent., 30 per cent., 50 per cent., or what? Is he aware that massive imports have seriously threatened the Sheffield special steels industry? Is he further aware that if he cuts capacity further it will be a green light to our competitors inside and outside the EEC? Will any of the money be conditional on merging with any segment of the BSC?

It is a separate exercise from the Phoenix arrangements, which are under discussion between elements in the private sector and the BSC. We have had Phoenix 1 involving Allied Steel and Wire Ltd. Talks are going on about the areas of engineering steels and heavy forgings. On the hon. Gentleman's first point, imports would threaten were it not for the voluntary restraint agreements, which it is hoped to renew early next year, and for which a mandate was given by the Foreign Affairs Council at the meeting last week.

May I press the Secretary of State on the question of restructuring? Does he accept, as my hon. Friend's have said, that we welcome that aspect of the announcement, although we hope that the majority of the public money going to the private sector will be used for restructuring and not redundancies? Therefore, should there not be public accountability, and will the Department monitor developments?

My Department has to agree a scheme before the money becomes payable. I made it clear that the scheme is under section 8 of the Industry Act, and there will be all the normal parliamentary and other checks on the money.

Following are the eligible activities:

Assistance will be considered only in respect of establishments on the private sector primarily engaged in the following activities:
SIC Activity
ex 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 castings; 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) hot-finished products such as rails, sleepers, soleplates, joists, heavy sections of 80mm and over, sheet piling, bars and sections of less than 80mm and flats 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, galvinized sheets and other coated sheets; cold-rolled sheets under 3mm; electrical sheets; and strip and wire for tinplate.
  • 2235 Drawing, cold rolling and cold forming of steel—excluding the drawing and manufacture of steel 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.