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Sheffield Forgemasters

Volume 814: debated on Wednesday 8 September 2021


Asked by

To ask Her Majesty’s Government what assessment they made of the benefits of acquiring Sheffield Forgemasters.

My Lords, Sheffield Forgemasters is a unique and key strategic supplier to the UK’s defence programme. The decision to acquire this company will secure the supply of components for critical current and future UK defence programmes while preserving jobs and safeguarding important skills within the UK. The acquisition was assessed as offering the best value for money for taxpayers from the options available.

I thank the Minister for that reply. The Government’s acquisition of this great British company is highly welcome. It will help secure the submarine supply chain for future generations of vessels. Can the Minister say how much of the up to £400 million—which was announced via press release last week—has been allocated to what and under what timescale? How will the Government maintain their commitment to net zero alongside allowing this energy-intensive industry to perform its critical task for the nation? How can the Government allay fears that the company’s governance through the Ministry of Defence may inhibit its potential to expand into other key sectors, such as civil nuclear power, which are also desperately needed?

I thank the noble Lord for the tenor of his remarks and say to him that the proposed investment of £400 million over 10 years will be in defence-critical plant, equipment and infrastructure. That will include plans for a replacement heavy forge line, building a flood resilience scheme, and major machine tool replacements. It will be for the board of directors of the company to determine its activity in relation to climate change and targets for emissions. It is the case that the company has a healthy suite of commercial customers outwith defence. That is one reason why the company’s future has the potential to be very exciting.

My Lords, Sheffield Forgemasters provides key parts for our deterrent submarines and, as such, it is absolutely right and proper that the Government should ensure its continued operation under UK control. This ensures sovereign capability, which is a key plank of the integrated review. In the light of that, can the Minister say how the Government view the large number of foreign takeovers of very successful, high-tech UK firms during the past few years and the possible takeovers of Arm, Meggitt and Ultra, which are being considered at the moment?

As the noble Lord will be aware, the Government take a very keen interest in and keep a vigilant eye on security of defence supply. In relation to the specific issue that he mentions, the Government are closely monitoring the proposed acquisition of Meggitt by Parker-Hannifin. The Government have powers, as the noble Lord will be aware, under the Enterprise Act 2002, to intervene in transactions that raise national security concerns and will not hesitate to use those powers as appropriate if the UK’s national security interests are at risk.

My Lords, like others today, I congratulate the Minister and the Government on taking control and purchasing Sheffield Forgemasters. It is a company with a long and very distinguished history—it goes back over 200 years—but, like the rest of the British steel industry, it is seriously undercapitalised. It needs financial investment. The £400 million is great news, but that can be only the beginning of the likely level of investment that is needed. It will also need investment in management, in skills training and in the workforce to make sure that it is one that is not ageing and that younger people want to join. Above all, it needs a long-term commitment; there has been far too much short-termism in the steel industry. Although I fully welcome this step, I would like the Minister’s assurance that the MoD will look at Sheffield Forgemasters in the long term.

Yes, I am happy to give my noble friend that assurance. It is demonstrated by our commitment to provide up to £400 million of funding to the company over the next 10 years. Some of the defence programmes that Sheffield Forgemasters is a unique supplier to will in fact stretch beyond that period, so we have acted to ensure that the company continues to be able to meet these long-term requirements.

My Lords, the cost of Sheffield Forgemasters was £2.56 million and there is already an agreement to have another £400 million of expenditure. To what extent is that coming from existing defence budgets and to what extent is that additional expenditure? Is this because, yet again, a defence procurement has not been fully thought through?

As I think is universally understood, this was really a stand-alone case and a matter for essential intervention to preserve critical national infrastructure. The financial undertakings to which the MoD has committed itself include the share capital purchase, as the noble Baroness has indicated. It also includes taking on and refinancing the current indebtedness, which is approximately £19 million, and the capital investment that we have just been discussing. I say to the noble Baroness, as I observed earlier to the noble Lord, Lord Walney, that this is a company with an exciting commercial future. This is an ongoing enterprise and defence’s role is to ensure, as my noble friend inquired about in the previous question, that this company has a secure future—a sufficiently secure future that we can return it to the private sector.

My Lords, this week, the Secretary of State said that SFIL is

“the only available manufacturer with the skills and capability to produce certain large-scale high-integrity castings and forgings from specialist steels in an integrated facility to the highest standards required for specific defence programmes.”—[Official Report, Commons, 6/9/21; col. 2WS.]

Does that mean that SFIL will have a monopoly of supply for such components, allowing it to invest, with confidence, in the future?

It means that the company has an ascertained level of demand from the MoD but, as I said earlier, it also has a very healthy suite of non-MoD, commercial customers. Part of the challenge that the MoD is embracing with the current management of the company is to ensure that that side is grown as well, but the money that the MoD is providing will be directly and singularly applied to the needs of the company to address the MoD customer requirement.

My Lords, I too welcome the acquisition of Sheffield Forgemasters International Ltd. May I ask my noble friend what impact this will have on companies bidding now or in the future for defence contracts?

My noble friend asks an important question. We operate under strict regulations that preserve the commercial market. Where competition exists, MoD contracts are tendered in an open and fair competition and companies will not be disadvantaged from bidding for MoD contracts where they have the required capability.

My Lords, given that, three weeks ago, the Swedish steelmaker SSAB supplied Volvo with what was described as the world’s first “fossil-free steel”, produced with iron using 100% hydrogen, does the Minister see this acquisition as a step towards the development of such environmentally friendly procedures for the production of steel in the UK? If Sheffield Forgemasters is not the vehicle, how will we catch up with Sweden in this important industrial area?

Well, I feel very inadequately qualified to give the noble Baroness an intelligent answer. What I would say is that, in so far as the MoD premise is concerned and in so far as our responsibility extends to Sheffield Forgemasters, as I indicated earlier, it will be for the board and managers of that company to determine how they comply with climate change aspirations and targets for emissions.

My Lords, as an out-of-date chartered engineer, I very much support what the Government have done. However, thinking about the past, is there an absolute guarantee that the management of Sheffield Forgemasters is superior to what it was in 1990, when it was making the supergun but did not know it was a supergun and was working for Saddam Hussein but did not know it was working for Saddam Hussein? If it had not been for Mossad having a meeting with Gerald Bull, the designer, we would have had an absolute disaster in the Middle East—we were deeply involved in that.

I remember that in 1990 I thought Scotland would never see devolution, so we all have to get used to change. What I can say is that the activities of the company have moved on significantly. I reassure the noble Lord on what I think is an underpinning serious point to his question that, as part of the MoD supplier monitoring programme, the MoD, in line with key customers of the company, worked with the company to restructure the management team in 2018. That management team has successfully led the delivery of a transformation programme for the company and the MoD regards the current board as the right leadership to deliver the capital investment programme, secure defence output and secure the long- term future of the company.