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Sheffield Forgemasters

Volume 514: debated on Wednesday 21 July 2010

Motion made, and Question proposed, That this House do now adjourn.—(Stephen Crabb.)

Normally when a Member speaks in an Adjournment debate at this time of night, they stand in the Chamber in splendid isolation. It is obviously pleasing to see so many right hon. and hon. Friends here tonight, particularly four other Sheffield MPs, my right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett), and my hon. Friends the Members for Penistone and Stocksbridge (Angela Smith), for Sheffield, Heeley (Meg Munn) and for Sheffield Central (Paul Blomfield). It is also pleasing to see my right hon. Friend the Member for Rotherham (Mr MacShane) and many other colleagues.

This issue affects not merely Sheffield—it has touched a nerve across the nation—but forging and forgemasters are very important in the history of Sheffield. As a child growing up in the city, the pounding of the drop forges down in the Don valley, which is now part of my constituency, was like the very heart of the city beating.

However, this debate is not only about the history of industry in Sheffield, but about its future. In 2005, when the company was part of the Aitchison group, there were major financial difficulties. Eventually, the company was saved by a management buy-out led by chief executive Graham Honeyman, who by putting his own money in saved the firm, its workers’ jobs, debts to suppliers and, with the help of the pension protection fund, the workers’ pensions. Despite initial problems with cash flow and rising energy prices, the company became profitable and increased in size to 700 employees, taking on 70 new apprentices. The company has full order books and 80% of its work is for export, and it has a turnover of £100 million. All the company’s profits to date have been reinvested.

Two or three years ago, the company saw a major opportunity in the nuclear industry. With £150 million of investment, it could buy a 15,000 tonne forging press. However, as that was larger than the company’s total annual turnover, it needed additional help. It went to my friend, the previous Member for Sheffield Central, Richard Caborn, who deserves a great deal of credit for the help he gave at that time.

That package would have created 400 jobs. The Government were approached and over a two-year period, very detailed negotiations were held. Eventually, an £80 million loan was agreed as part of a package involving private investment, including support from Westinghouse, loans and equity release. There was a full appraisal by Department for Business, Innovation and Skills officials and Treasury officials. It was confirmed in parliamentary answers that the independent Industrial Advisory Board gave its assessment, and that Deloitte and Allen & Overy looked at market opportunities and additionality, and at cost-benefit and commercial considerations. After all that, it was concluded that a loan of £80 million was the right way to go as part of an overall package. The loan was also part of an industrial strategy with a nuclear research centre and the Advanced Manufacturing Park. I do not think that France and Germany would have such a dilemma about what to do about investing in such a company.

After the election, we were told that there would be a review. Funnily enough, most of the reviews that took place actually approved schemes that were in train, so let us examine what the review of the Forgemasters loan amounted to. There was no new cost-benefit analysis and no new external advice was sought. Indeed, the Government did not get back to the original advisers. There was no contact with Forgemasters. The first time the company learned anything of the review was when the chief executive got a phone call from a Minister, who said, “Your loan has been withdrawn.” That is no way to carry out a review. The kindest thing I can say is that it was a virtual review; the worst thing I could say is that it was an absolute sham.

Since then, various reasons have been given for the refusal of the loan, including that the directors would not dilute shares. The Deputy Prime Minister and the Prime Minister said that, but the former has had to write to the chief executive to apologise for making inaccurate statements, although he did not apologise today in the House.

Private funding was involved via an element of equity release, but the company would not continue with extra equity release to the point at which control passed back to an absentee owner—the very sort of owner that nearly bankrupted the company in 2005 when the workers and management had to save it.

It was said that commercial options were available. Indeed, the Lib Dem leader of Sheffield city council, Councillor Paul Scriven, said that the commercial markets would provide the money. Will the Minister confirm that at a meeting with Forgemasters and his officials the other day, it was agreed that there were no straightforward commercial options without the loan?

We have been told that there is no money, and that this is unaffordable, but we are talking about an £80 million loan, not a grant. It would have been repaid with interest, making a repayment of £110 million, plus additional money from equity warrants if the investment had been successful, plus the tax revenue from those employed by Sheffield Forgemasters and by companies in the supply chain such as Davie Malcolm, Siemens and Rolls-Royce. This loan would actually have made a profit for the Treasury. The Business Secretary almost admitted as much to the Select Committee the other day.

We were also told that the loan had been a pre-election bribe to buy up a few votes at the general election, but the negotiations had been going on for between 18 and 24 months before the election. So what was the real reason for this decision?

I have here correspondence released following a freedom of information request. It indicates that Andrew Cook, of William Cook Holdings, wrote to the Government to urge the cancellation of the loan. Does my hon. Friend agree that this approach from a major donor to the Tory party seems to provide the only basis for the Government’s decision to cancel the loan?

I have not heard any other reason. I have read out four reasons, all of which have been proved to be inaccurate and untrue. I shall read out some of the letter that Andrew Cook sent. There were lots of letters sent in during the review, but I think the Minister will be able to confirm that this was the only one that objected to the loan and said that it should not be granted. It is dated 25 May, and it begins:

“Dear Mark,

I am the largest donor to the Conservative Party in Yorkshire and have been since David Cameron was elected leader. I am delighted you are at last back in power, albeit in coalition.”

The letter goes on:

“I have specialist knowledge of the situation which I would like to share with you confidentially. The loan is probably unnecessary and possibly illegal under EU rules. I believe the private sector could provide the required finance without the taxpayer shelling out…It is a typical labour ‘sacred cow’. I believe you may be the best person to consider this matter as Vince Cable may find it a difficult nettle to grasp, being as Nick Clegg is a Sheffield MP.”

Well, he needn’t have worried about that, need he? A second letter from Andrew Cook, dated 9 June, states:

“For the record, I am convinced from my own industrial experience that the necessary finance could be raised from the private sector.”

He goes on to cite

“the reluctance of local management to accept outside equity investment.”

Where have we heard those comments repeated subsequently?

Did the Minister, or any other Minister or civil servant, reply to this letter? Who knew about the letter? Did the Deputy Prime Minister or the Business Secretary know about it? Did the Chief Secretary to the Treasury know about it? Tonight, Downing street has issued a statement saying, “Not us, guv. It was all down to the Liberal Democrats. It was down to the Business Secretary and the Chief Secretary to the Treasury. They made the decision.” It will be interesting to hear people’s response in Sheffield to how the Lib Dems have treated them in this regard. When did Ministers know about this letter? Was it taken into account in reaching the decision? It is difficult to believe that it was not, because there was not one other shred of evidence thrown at the review that could have led the Government to change the decision that had been taken previously.

In the end, Sheffield Forgemasters will continue to be a successful company without this loan. Without it, however, the losers will be UK workers, UK industry and the UK economy. In the light of the cloud that these letters have now cast on the real reason for the withdrawal of the loan, and in the absence of any other real reasons being provided, will the Minister now accept that the case for a proper independent review into this whole matter is unanswerable?

I congratulate the hon. Member for Sheffield South East (Mr Betts) on securing this debate. I suspect that he was hoping that it might take place a bit earlier this evening, but it is nevertheless an important debate. It is good to see Members from all parties here, although I suspect that some might not be here entirely in the sole interest of the company.

I should like to set out the current position. Then I will address the individual questions that the hon. Gentleman has quite rightly raised. Sheffield Forgemasters is a good example of a successful British manufacturing company. The Government whole-heartedly support what the company does, and I would like to place on record our recognition of its excellent work.

I am well aware that since 2005, the chief executive, Dr Graham Honeyman, and the current management have, as the hon. Gentleman rightly said, grown the business and made sure that it has developed into a highly skilled manufacturing firm. Remarkably, this was achieved during a recession that has been very difficult for manufacturing, but it has got through that without making any staff redundant. That is a testament to the commitment and dedication of Dr Honeyman and of everyone who works in that business.

So let there be no doubt about this Government’s admiration for Forgemasters, and nor should there be any doubt about our broader commitment to British manufacturing. It is precisely because of our desire to see a thriving UK economy and a vibrant manufacturing sector that, yes, we have had to take a number of difficult decisions in recent weeks. The decision not to proceed with the conditional offer of an £80 million loan to Sheffield Forgemasters was not taken lightly, but ultimately, we came to the reluctant decision that the loan was simply unaffordable at this point.

What comment would the hon. Gentleman make on the allegations by the Deputy Prime Minister that Dr Honeyman was actually involved in looking after his shares, rather than seeking a loan in the private market? He has had to repudiate that in the Yorkshire Post, and it has caused enormous distress in Yorkshire that the Deputy Prime Minister of our country can make such outrageous allegations about a decent chief executive.

This decision has got nothing to do with dilution of equity, which I shall come to in a moment in detail, if I may. The point we are trying to establish is that there is no question of dilution. The issue for us has always been commercial affordability.

Some people have said that the decision is somehow a reflection on the company, the project, its management or staff; in fact, quite the opposite is true. We fully recognise that the project is commercially worth while, but the key point here is that this Government are serious about addressing the deficit and rebalancing the UK economy so that it can recover and grow once more. We are absolutely determined to ensure that all companies, including manufacturers, can operate in the right long-term business environment, so they can thrive and grow.

As a result, the first priority for this incoming coalition Government has to be to restore confidence in the UK’s finances, because confidence is the bedrock of our future economic growth. That means that we have to get to grips with the record budget deficit that we inherited, in order to ensure that this country is once again a good place in which to do business.

But if the reasoning is not the letter from Andrew Cook or some other spurious reason that has already been knocked down by my hon. Friend the Member for Sheffield South East (Mr Betts), and it rests solely on the budget deficit, why was Forgemasters one of only two projects reviewed that were refused by the Government, and 12 projects were not?

I am just about to come to that. I believe that the critical issue here is affordability. We have had to deal with very difficult circumstances, not least the fact that on taking office, it became clear that the structural deficit is £12 billion more than we were led to believe by former Labour Ministers. If apologies are due, in my personal opinion they should come from the former Labour Ministers who were in this Chamber and failed to be straight with the British people about the size of the deficit. That is the critical issue.

Of course, the ideal outcome would be for the project to proceed with private sector finance, and I very much hope that in the longer term, that will still happen. However, I must make it clear that, given the scale of the budget deficit that the country faces, we considered the issue from the point of view of unaffordability.

I respect the way in which the Minister is trying to respond to the debate tonight, but is not the £500,000 that Mr Cook donated to the Conservative party, along with the £54,000-worth of plane flights for the right hon. Member for Witney (Mr Cameron), the real reason for the cancellation?

No. Let me make this very clear: in the letter that Mr Cook wrote, he mentioned a number of things. I have the letter with me. [Interruption.] I will answer the question fully. As the hon. Member for Sheffield South East correctly says, Mr Cook states, right at the top of the letter, that he is a donor to the Conservative party. He goes on to say that he is a senior industrialist in Sheffield with two casting plants in that city. [Hon. Members: “Oh!”] If the Labour party will listen for a moment, the point about that is that it tells me that we are talking about somebody who has some interest in and knowledge of the industry. He goes on to say that he may consider whether or not there is an issue of legality.

When I receive something of that nature, as a Minister, I do not give a monkey’s whether the person is a donor to the Conservative party, the Labour party, or any other party. What I am primarily concerned with is making sure that the matter is dealt with equally. With all representations—whether a person donates to the Labour party through the trade union movement, to the Conservatives, the Liberal Democrats or any other party—my view is that they should go to the officials; they must decide on the issue of legality.

Just one moment, because I think that the letter to which we are referring is not something that all Members have seen. As the hon. Members for Sheffield South East, and for Penistone and Stocksbridge (Angela Smith), know perfectly well, I made sure that the letter was made available—they nod in assent—so that we could look at it in the debate. If I had something to hide, I would not have done that, and hon. Members have noticed that.

I also say to Opposition Members that it is peculiar logic to suggest that a Conservative party donor is the reason why a Liberal Democrat Cabinet member in the Department for Business, Innovation and Skills, and a Liberal Democrat Chief Secretary, should support the proposal. If the Labour party’s argument is that somehow, a Conservative party donor is managing to twist events in the interests of that party, it has made a mistake, and that is the problem.

Does the Minister therefore concur with the statement from Downing street that the decision was solely the responsibility of Liberal Democrat Ministers?

That is not actually what the statement says. The decision was taken by the Government as a whole, and rightly so, but nevertheless, it is one on which the Secretary of State for Business, Innovation and Skills and the Chief Secretary to the Treasury obviously had the lead. As I made perfectly clear, the argument that somehow a Conservative party donor is twisting the arm of the Liberal Democrats does not make any logical sense.

We have already heard that Andrew Cook, a Tory donor, has approached and lobbied the Government on the issue. I just wonder to what extent his sister, Angela Knight, a former Tory MP and head of the British Bankers Association, is also part of a cabal that is influencing yes-or-no decisions on major projects that bring jobs to our country.

That is complete nonsense from the right hon. Lady. The sad part about this is that while I totally respect the interests of the local Members of Parliament here, who want to see a decision taken, the national Labour party Front Benchers are using the issue as a method of trying to unsettle the coalition Government.

I will move on, because the hon. Member for Sheffield South East, the constituency Member of Parliament, has asked a series of questions, and I want to try to answer them. I appreciate that Members from Wales and elsewhere may wish to intervene, but the matter relates to Sheffield, and I am going to try to deal with it. Let me move on, if I can.

I said that a private sector outcome was an important possibility. Hon. Members alluded to the fact that the company has set out its views in just the past 48 hours. It might help the House if we listened to those views. Dr Honeyman has said, in the past 24 hours:

“We are still keen to undertake the 15,000 tonne press development but feel that the company’s best interests will be served by suspending work on the project for the time being.”

[Interruption.] One moment, and I will give the answer that the right hon. Member for Don Valley (Caroline Flint) seeks. The statement continues:

“The opportunities in global nuclear will continue to grow.

This pause will give the company, which has invested more than two years and significant funds to this project, time to resume a greater focus on growing our business into civil nuclear and other sectors.”

Dr Honeyman concludes—this is very relevant to the issue that Members are concerned about:

“As our thinking develops we will of course take up the Government’s offer of further discussions. The company recognises the difficult financial position faced by the country and accepts the loan offer will not be reinstated.”

I am listening to the Minister very carefully and he is making a great deal of the issue of unaffordability, but the Government have continued with projects in relation to Nissan and other industrial projects. Why Sheffield Forgemasters, when clearly the Government are saying to us that they appreciate just what a great company it is?

There are difficult decisions in this issue, and we have taken the view that the project is unaffordable. That is the challenge that we have had to deal with.

No, I will not give way. The right hon. Gentleman can shout and scream all he wants. I will try to answer the constituency Member’s questions.

Having quoted the company chairman, I want to point out the position from the Government’s point of view. Yesterday, the Secretary of State, on receiving a note from the company, said:

“I will keep the situation under review and reconvene the meeting of experts with the Sheffield Forgemasters Board when they are ready, to review the investment potential with the company.”

On that basis—

I appreciate the argument that the Minister is rehearsing this evening. As the Chief Secretary to the Treasury at the time, I was involved in negotiations about this loan. I insisted on certain conditions and certain restructuring, including the issue of equity warrants. Is he aware of advice to me from Her Majesty’s Treasury officials that recommended acceptance of the loan on the grounds that it was indeed value for money?

When it was the right hon. Gentleman who told us in a letter that there was no money left, it is a little rich to be lectured by him on financial prudence. I am more concerned with making sure that we move on so that this company can do its job and stop the Labour party from playing party politics. It is bad for local jobs and it is bad for the company.

I appreciate the partisan point that the Minister is trying to rehearse. My question was much simpler. Was he aware of Her Majesty’s Treasury officials’ advice to me that this loan should have been accepted and was, in their judgment, value for money? Yes or no?

The right hon. Gentleman knows perfectly well that Ministers receive a wide range of different advice. He knows that perfectly well. The issue, as I have said time and time again, is affordability. That is what I am dealing with.

Let me move on from the machinations of the Labour party and deal with the economic issues, which I think are the crucial ones. There has been some good news for Sheffield Forgemasters in the last few days. It has recently signed a £30 million trade agreement to oversee the development of power generation forgings with the Indian state-run power equipment maker, Bharat Heavy Electricals Ltd. It is important here to bear in mind—I know that the local Members will be concerned about this—that the venture will be operated as a technology transfer agreement, and it will see BHEL buy both the technology rights and share Sheffield Forgemasters’ specialist engineering knowledge. That is an important issue. It is a 10-year agreement and it will help to strengthen and protect future markets for Sheffield Forgemasters in the Indian subcontinent. Also important is that the agreement will mainly serve India’s rapidly growing domestic market for turbine and power generation products, including the nuclear power plants.

Forgemasters specialist forging skills are in demand in markets around the world, and that will continue to be so. It will continue to play a part in the emerging UK nuclear supply chain, not least through the Nuclear Advanced Manufacturing Research Centre, which the Government continue to support.

On a point of order, Mr. Deputy Speaker. The Minister alleged earlier that there were all sorts of people here who were not from Yorkshire. There are many Yorkshire Members of Parliament, and one on the Government Benches has just been wheedled into the Chamber.

The Minister is responsible for his own speech. A number of questions have been asked, which the Minister has a right to respond to. If the House could be quieter, I would appreciate that.

On a point of order, Mr. Deputy Speaker. The Minister said that people from Wales and other parts of the United Kingdom have no interest in this. That simply is not the case. There is a national interest here. Investment from Sheffield Forgemasters will impact on hundreds of millions of pounds of investment in my constituency. This is not just a local issue; this is a national issue, and the Minister should acknowledge that.

That is not a point of order for the Chair, and the Minister is responsible for the interventions that he takes. As I said, a number of questions have been asked by the constituency Member who has called the debate, and he deserves to have his answers.

Thank you, Mr Deputy Speaker. I entirely agree with that.

I turn now to some of the other questions that were raised by the hon. Member for Sheffield South East in his opening remarks. First, he questioned the issue of affordability, and other Members have also raised that. One of the key points to bear in mind is that, in the light of the huge deficit that we inherited, this Government had to take the decision on the grounds that this project was not affordable. One of the key changes is that the structural deficit emerged after the election as being £12 billion worse than Ministers announced.

No, because it is important that I try to answer some of the other questions that were raised and I have only five minutes left. The hon. Gentleman asked some eminently sensible questions and I want to try to give him the answers.

I will come to the letter in a moment.

The hon. Member for Sheffield South East asked me what affordability actually means. There seems to be some confusion about this on the part of Labour Members. Financing a loan of this nature needed £80 million more debt to be issued. That would have meant £80 million more debt on the Government’s books this year. So to claim that somehow this loan would not be as challenging as all that or would not really represent debt on the books of the Government is not correct. The reality is that by taking on that commitment we would have been adding to the enormous debt, regardless of the nature of the assets it financed.

I turn now to the question of the letter and the background to it, which Labour Members appear to be more interested in than the question of the company—[Interruption.] I exclude the local Sheffield Members, but their colleagues appear to be more concerned about the party politics. Local Members have made representation to the Department by means of a freedom of information inquiry. They put their letters forward. On seeing those I ensured that their requests were answered, so that they received all the information this evening for this debate. That is an important point, because one of the accusations against us is that somehow we are not being transparent. In making sure that those hon. Members who tabled freedom of information requests received the information for this debate, we are being—let me be crystal clear on this point—absolutely transparent on this matter.

No, because the hon. Member for Sheffield South East has asked questions that need to be answered—[Interruption.] When the hon. Member for Wrexham (Ian Lucas) calms down, I will reply.

The Department received an email from Mr Cook’s company. While it was noted, as every representation is noted, it had no bearing on the decision-making process. That is an important point.

Of course I saw the letter, because it was emailed to me. As I have made clear, it was apparent from the letter that this was a business man who had knowledge of Sheffield and the industry and was making various representations. My view was that that should go to the officials. It went to the officials and the answer that came back was “We have noted your letter, Mr Cook.” That was it. There has been no further—[Interruption.] The reply is included in the replies that I have given to the local Members. It is clear—[Interruption.] No, I am sorry, but that is wrong.

The other question that has been raised by several hon. Members is the issue of the dilution of equity. I set out the situation clearly in my remarks earlier. The Government’s decision had nothing to do with the shareholder structure. In my view, Dr Honeyman and his team deserve credit for putting this together—

If the Minister says tonight that this decision had nothing to do with the directors’ shareholdings, why did the Prime Minister and Deputy Prime Minister allege that that was the case as justification for this decision?

The right hon. Gentleman usually makes intelligent contributions, but that was just part of the knockabout nonsense—[Interruption.] This has always been, as my colleagues and I have made clear, an issue of affordability. That is the crucial point in this debate.

No. I have 60 seconds left and I want to ensure that I draw my thoughts to a conclusion.

Business in this country cannot prosper while we have a record budget deficit hanging over us. That is the simple fact, but it is one that—sadly—the Front-Bench Members of the Labour party seem unable to grasp. A clear plan to eliminate the structural deficit by the end of this Parliament can leave the markets in no doubt that the Government will live within their means. That is why we have placed fiscal discipline at the top of our programme for governance. Our job in government is to create a stable, long-term framework so that all companies—

House adjourned without Question put (Standing Order No. 9(7)).