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British Steel: Privatisation

Volume 490: debated on Thursday 3 December 1987

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3.44 p.m.

My Lords, with the leave of the House, I should like to make a Statement on the British Steel Corporation.

The corporation today announced its half-year results for 1987–88. These show a bottom line profit of £190 million. This compares with £178 million for the whole of 1986–87. This is an impressive improvement in the corporation's performance and I am sure that your Lordships' House will join me in congratulating the corporation and all its employees on such an impressive achievement.

As your Lordships' House is aware, this Government are committed to returning successful state industries such as steel to the private sector as soon as practicable. It is quite apparent that the British Steel Corporation has now reached the stage where it would benefit from a return to a fully commercial environment. I am therefore pleased to announce that my right honourable friend the Chancellor of the Duchy of Lancaster is setting in hand the work necessary to privatise the corporation as soon as possible subject to market conditions. Legislation will be required to turn the corporation into a private company. This will be introduced later in the current Session.

In accordance with the previous commitments given by the Government, the corporation will continue with five integrated plants until August 1988. My right honourable friend has been reviewing this with the corporation in the light of the current market position. The corporation will require steel making at all five plants for a number of years. Those noble Lords with an interest in Scotland will be pleased to hear that the corporation will be putting out a statement today making clear that subject to market conditions there will continue to be a commercial requirement for steel making at Ravenscraig for at least the next seven years.

The corporation also expects that, again subject to commercial considerations, there will be a similar requirement for plate rolling at Dalzell. This therefore gives assurance to Ravenscraig's iron and steel making facilities for a considerable period—indeed, for a period much longer than the three year commitments that the Government have been able to give in each of the two previous reviews in 1982 and 1985. The corporation has also indicated that even if it should wish at some stage because of market conditions to close its steel-making facilities in Ravenscraig it would consider, on a commercial basis, any wholly private sector offer for those facilities as an alternative to closure.

There is clear surplus capacity in BSC, as throughout Europe, in hot strip. The corporation's strip mills are currently running at below 70 per cent. of their potential capacity, which is among the lowest level of utilization of strip mils anywhere in Europe. However, having reviewed the situation thoroughly, the corporation has decided on commercial grounds that all its present mills, including the Ravenscraig mill, will continue to operate at least until 1989.

The Government's consistent aim has been to achieve a strong competitive British steel industry capable of performing well against international competition. This is in the best interests of the workforce of British Steel and of all its customers, and in particular of steel users in the rest of British industry. The British Steel Corporation has already achieved a quite remarkable recovery and is now one of the most successful steel makers in Western Europe. I believe that early privatisation and full commercial freedom will enable the company and its workforce to be best placed to go on to further achievements and to secure a firmly based competitive industry with along-term future.

My Lords, that concludes this Statement.

My Lords, the House will be grateful to the noble Lord for making the Statement. The noble Lord will not be surprised that we find the contents of the Statement wholly objectionable. Has not the taxpayer supported the British Steel Corporation through thick and thin and has not this been a great success story for public ownership? Therefore, should not the taxpayer enjoy the return through benefiting from the future profit streak? We congratulate the British Steel Corporation on its fine performance, but is it not a strange time to consider privatisation? Is this not introducing an element of great uncertainty into the business and the workforce at just the wrong time, when it is doing so well?

What conclusions are we supposed to draw about the further uncertainty about the future of EC quotas and possible reductions in capacity as a consequence? What will, or indeed can, be put into the prospectus on this matter? Will not the outcome of those negotiations not only affect the whole future of the British Steel Corporation but possibly jeopardise the privatisation itself? What will the Government be able to say in the prospectus about the future, particularly in the light of the chairman's statement issued in his interim remarks about the adverse effects of the weakening of the US dollar? Will the noble Lord seek to privatise the British Steel Corporation as one company—is that the intention of the Statement—or will he consider splitting it up? Perhaps he will clarify that.

Are the assurances about Ravenscraig really worth very much? "Subject to market conditions" is a pretty vague expression and my noble friend Lord Carmichael will be coming on to that at a later stage. Finally, if the privatisation goes ahead and if market conditions turn against the Government at the time of the issue, will the Minister stick to the market conditions proviso in the Statement on the timing? Will he give an assurance that we shall avoid a repetition of the BP fiasco?

My Lords, we on these Benches also wish to express our gratitude to the Secretary of State for making this very important Statement and making it with such clarity and brevity.

Some of us in the House may have a feeling that we have been here before.

It is a very important Statement on a very important industry. We are bound to treat the matter with the greatest possible responsibility. There is no need for me to delay your Lordships by repeating that our attitude in general to privatisation is that we are prepared to consider each matter on its merits but that those who wish to change from the public to the private sector, or the reverse, have the responsibility of making a case. The case has to be made on the grounds of greater competition and efficiency. At first glance it would appear to be much easier to make that case for steel than for the water or electricity industries, or in particular for gas.

We respond immediately to the invitation of the Secretary of State to join in congratulating the corporation and all its employees on such an impressive achievement. This is indeed one more example, of which there are several already, of how an industry can be run profitably by good management whether it is in the public or the private sector.

As to the improvement in the steel industry in the public sector being a jolly good argument for transferring it to the private sector. I am afraid that I regard that as one of the non sequiturs with which we are becoming increasingly familiar in government Statements. Indeed I am not sure whether there is not a misprint. The copy of the Statement which the Government have been courteous enought to supply me with says:
"It is quite apparent that the British Steel Corporation has now reached the stage where it would benefit from a return to a fully commercial environment".
I take it that that is a misprint and it should read:
"It is quite apparent that the British Steel Corporation has now reached the stage where the Treasury would benefit from a return to a fully commercial environment".
The Statement refers to "subject to market conditions". We must ask the Secretary of State to be a good deal more explicit. Clearly it would he wholly wrong and wholly irresponsible to consider issuing shares in a privatised company in the present state of the market. What do the Government have in mind and what criteria will they use in judging whether market conditions are appropriate?

The next question is similar to one asked by the noble Lord, Lord Williams of Elvel, but from a slightly different point of view. The Statement makes it clear that the machinery will be to turn the business of the corporation just as it is into a private company. Therefore, how will the competitiveness of the industry be increased? I am referring to the part of the Statement, if the Secretary of State does not follow me completely, where it says:
"Legislation will he required to turn the corporation into a private company".
I take it that we are to read it exactly as it has been stated.

We welcome very much indeed the comments in the Statement in relation to Scotland. They are an important part of the Statement and will be of considerable benefit to all those concerned, not only those with Scottish intereests but those with interests in employment generally. In that connection can the Secretary of State make an overall estimate, not merely for Scotland, of the employment situation in three years' time compared with what it is today?

I too am interested in the situation in relation to the EC. The Government have no doubt felt it proper hitherto to give full regard to the interests of British Steel while it was in the public sector in all negotiations on steel production generally in the EC. Can we be assured that they will still give the fullest regard to the best interests of steel production in this country once the corporation ceases to be a part of their direct responsibility?

My Lords, I am grateful to the noble Lord, Lord Williams of Elvel. I trust that the noble Lord, in saying that my Statement was wholly objectionable, did not include in that remark the corporation's results, which are a matter of considerable congratulation. I am sure that he did not mean to include that.

My Lords, I assure the noble Lord and the noble Lord, Lord Diamond, that the British Steel Corporation is one corporation and will continue to be one corporation. We shall deal with it and it will be returned to where it rightfully belongs, in the private sector as one corporation. I assure both noble Lords that what the market conditions will be will depend on how the market is at the time.

As my Statement made quite clear, we have first to bring a Bill through your Lordships' House and another place to ensure that the company is a private company suitable to be returned to the private sector. Then we shall proceed, subject to the legislation, to have the shares sold and the company returned to the private sector. There are very good reasons for that. I assure the noble Lord, Lord Williams, that the state and the taxpayer will profit now that the company is returned to good health, first, by the proceeds of the disposal of shares and, secondly, by the stream of tax revenues, as I would hope to see the company continue in its profitable state in the private sector, as indeed have all the now privatised companies that were once part of the public sector. Company after company is returning to the Treasury more in tax these days than it used to in dividends in the old days when it was in the public sector.

We have come a long, long way. The noble Lord, Lord Diamond, said that we have been here before. Alas, we were here some 20 years ago when unfortunately the whole of the steel industry was nationalised. We are now seeing a thoroughly strong potentially private sector steel industry which will be with us, we hope, within a year or two. Steel-making is an activity that is suitable for privatisation. It is in the forefront of competition throughout the whole of Europe. Before very much longer my right honourable friend the Chancellor of the Duchy of Lancaster will be attending the Steel Council and we shall be discussing the position of surplus steel-making capacity in Europe.

Today all noble Lords will at least feel encouraged by the fact that we have as competitive a steel industry as any in Europe and that we are in as good a position as any other country in Europe to face the challenging conditions to come. The present assessment of the management of the British Steel Corporation is that the company is suitable for return to the private sector, and it will be returned to the private sector as soon as legislation permits. If at that time market conditions should advise otherwise, no doubt that practical advice will he followed.

Finally, perhaps I may say to the noble Lord, Lord Diamond, that it is impossible for me, the management or anyone else to give an estimate of what the employment position will be like in this industry or generally in three years' time. That depends on the market conditions at the time. What I know today is that the steel industry is likely to be profitable and efficient in three years' time.

My Lords, I am sorry to press the noble Lord. Will he answer my question about the effect of EC quotas and possible reductions in capacity?

My Lords, at the moment the position is in a state of flux. There is a strong possibility that quotas will disappear over the next 18 months but that depends on the outcome of the Steel Council. Should quotas disappear, we are as well placed as anyone to face the conditions at that time.

4 p.m.

My Lords, as one who has been particularly closely involved with the steel industry over the past eight and half years perhaps I may congratulate the industry on its magnificent performance, not least the performances of the two great steel plants at Llanwern and Port Talbot and the tinplate industry in Wales for its contribution.

Was it not an extraordinary comment from the noble Lord, Lord Williams, that it is wholly objectionable that commercial decisions should be taken by commercial organisations? Does he recollect, as I do, sitting through endless meetings of Cabinet and Cabinet committees to decide about wholly commercial matters, such as the future of Ravenscraig, and indeed other much more direct daily commercial matters, a position forced on government by nationalisation? Does he not share my welcome for the fact that we are to get away from that wholly undesirable position? Will he not confirm that the chairman of the British Steel Corporation has said that he looks forward to privatisation, wants privatisation and wants to do business in a world where he can take decisions on a commercial rather than a political basis?

My Lords, I am grateful to my noble friend, whose voice I hear for the first time in your Lordships' House; and all the better for that since I agree so much with what he says. Leaving aside the fact that the noble Lord, Lord Williams, finds my Statement objectionable—and in the fullness of time I hope to persuade him to see the error of his ways—I should like to pay full tribute to the way in which the steel industry in Wales has rallied over the past few years and during the time when the noble Lord was a distinguished member of the Cabinet.

The noble Lord has one other advantage over me. Perhaps it may well be that the day I leave the Cabinet I will recover my memory as to what goes on on those occasions; but for the moment my mind is quite blank!

My Lords, everyone would want to congratulate the British Steel Corporation on its quite remarkable performance over the past few years. However, is the noble Lord aware that there will be little satisfaction or reassurance felt in Scotland when the fine print of the Statement has been examined? Under examination the apparent seven-year guarantee becomes subject to commercial requirements and market conditions. How does this differ from the Statements made in 1982 and 1985 when a period of three years was given?

The Statement goes on to say that the corporation has indicated that, even if it should wish at some stage because of market conditions to close its steel-making facilities at Ravenscraig, it would consider on a commercial basis any wholly private sector offer for those facilities as an alternative to closure. This compounds the uncertainty that will he felt in Scotland about Ravenscraig. Is the Minister aware of the social damage that this continued uncertainty will cause in Lanarkshire in particular and in Scotland as a whole?

My Lords, I am grateful to the noble Lord for those comments but I feel I must express my amazement. We live in the real world, a competitive world, yet the chairman and board of BSC having considered the position are prepared today to give assurances lasting for seven years about the production of steel at Ravenscraig; and furthermore have said that, should they at any time in the future have to close those steel-making facilities at Ravenscraig because of market conditions, they would consider on a commercial basis any wholly private sector offer for those facilities as an alternative to closure. Going that far is unparalleled. It is going much further than the three-year commitments that governments have given and have been able to offer in reviews in 1982 and 1985. In the real commercial world it is difficult for management to see that far ahead, yet we are indeed aware of the sensitivities in Scotland and the management of the British Steel Corporation has been able to offer assurances going as far as seven years. I thought that those assurances would be received with great rejoicing north of the Border and I am sure that they really should be.

My Lords, will the Secretary of State accept that there is a point of view in Scotland different from that suggested to him from the other side of the House? Does he realise that the voices of protest from the other side would have been equally loud, if not louder, had he announced that the British Steel Corporation was to be privatised while making heavy losses? It is a great plus that now the industry has taken itself out of the deplorable state it was in under its national control and is fit to be offered to the private sector. Does he accept that many in Scotland will welcome the assurance that has been given today? Indeed it is an assurance that could hardly be bettered. It is realistic. Many in Scotland will greatly appreciate that.

Finally, while my noble friend is in the process of preparing legislation which will enable the British Steel Corporation to be privatised, will he look a little further at the coal industry in Scotland to see whether he can do something about that at the same time?

My Lords, on my noble friend's final suggestion, sufficient unto the day, I think.

I can recall vividly my arrival at the Department of Industry in 1979 as special adviser when the British Steel Corporation was losing £4 million or £5 million every single day. It is an enormous transformation. It is a tremendous tribute to the enthusiastic workforce and to the management of the British Steel Corporation, which is looking forward now to an even better life in the commercial world where it will be able to make commercial investment decisions for the best of all possible reasons.

My Lords, have we not heard the most revealing sentence, a real example of letting the cat out of the bag by the Secretary of State? He said that the Government are committed to returning to the private sector successful state industries such as steel. Is that not another way of saying that some fat profits will be made by certain people in the City? Is there not now ample evidence of shortcomings in the Government's privatisation programme? Will they give a little more consideration to the country as a whole and not simply to profit-making? In a recent debate on this question noble Lords on all sides of the House showed that this was not just a question of certain people making money. Will the Secretary of State give further consideration to this point?

My Lords, I have given long and careful consideration to the way in which a country could have all the health, social and other services it has without creating the profits in the first place out of which to do so. Of course we can only privatise those companies which are profitable. If the noble Lord can suggest to me a way in which we can privatise unprofitable companies I promise we will consider it seriously, because companies do not flourish and do not grow in the public sector. What we are seeing is simply a further extension of the Government's privatisation programme, which will not end until all the companies that should be in the private sector are returned there.

My Lords, the Secretary of State has made it clear that the proposed privatisation measure for British Steel will comprehend the whole of the organisation as it now exists. While it is perfectly true that British Steel is in competition with other big steel-makers throughout the world, it would remain the dominant steel-maker in Britain. Would it therefore be proposed to introduce into the legislation some regulatory body, or other consumer protection body, which could safeguard users of British Steel in Britain? I speak as a past chairman of the British Steel Users' Association.

My Lords, the normal reason for introducing a regulatory body is to ensure that, if there should be a monopoly supplier, that monopoly supplier will not charge excessive prices to the consumer. I recall the difficult days in 1979–80 during the strike in the steel industry when after a few weeks there appeared to be an adequate supply of steel coming in from other parts of the world, and I think that would ensure that there would be no shortage of competition, whatever the British Steel Corporation did in its private form. To have a regulatory body to ensure that only British steel was used would be quite against the spirit of the Treaty of Rome, and indeed not in the interests of either the consumer or British industry as a whole.

My Lords, while I fully support the firm response of my noble friends to this doctrinaire and unnecessary proposal. it is to another matter that I wish to direct the attention of the noble Lord and also the noble Viscount the Leader of the House. In the Statement it makes plain that legislation is proposed in the current Session. The noble Viscount and noble Lords opposite are fully aware that we are deeply concerned at the present time about the volume of legislation which it is proposed should come before this House. It is generally agreed on all sides of the House that the legislation which was predicted in Her Majesty's gracious Speech was indeed far too heavy a burden in parliamentary terms.

We know perfectly well that very heavy legislation will begin to come to this House from another place from Easter onwards, and now the Government are proposing to entertain another heavy and highly controversial measure in the current Session. What I say now I say for the purposes of putting a marker down, because obviously we shall have to return to this. But it is my duty on behalf of the Opposition and indeed on behalf of noble Lords throughout the House to give notice that this may create an extremely difficult situation for this Chamber.

My Lords, I take my full responsibility for this decision and for what was said about legislation. I fully understand what the noble Lord the Leader of the Opposition has said. I hope to prove to him, as the year goes on, that I shall succeed in looking after the interests of the Members of this House with his assistance. I fully accept that I cannot do it without his assistance and the assistance of the leaders of the other parties, but together I believe that we can do it. If it is in the best interests of our country, it is certainly my job to seek to get the legislation through your Lordships' House.

My Lords, does my noble friend agree with me that the noble Lord the Leader of Her Majesty's loyal Opposition grossly underestimates the stamina of our youthful House?

My Lords, I do not know about the stamina of noble Lords. Sometimes I begin to wonder how their breath will hold up in some of their activities, and perhaps a little less breath would be a good thing from time to time.

My Lords, is it not conceivable that our ability to digest further legislation might be improved if we got on with the copyright Bill?