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Lord Mendelsohn
To ask Her Majesty’s Government what steps they are taking to support the steel industry; and what role it will have in the Government’s industrial strategy.
Lord Mendelsohn (Lab)
My Lords, I am very grateful to those who are participating in this debate. We have a very distinguished group of speakers with tremendous experience and wisdom in these areas, and I look forward to hearing your Lordships’ contributions. My own detailed experience of the sector is only recent. Like so many issues brought to the attention of this House, one can get a rudimentary understanding, but it is rare to get the feel of an industry. I know that the Minister has such a feel for these issues and I am grateful that he has made himself available for this debate. He has always had a very open and thoughtful mind when it comes to matters relating to the steel industry, and his participation is appreciated.
When Greybull bought the long products division of Tata Steel, I was intrigued. I was interested in what a very capable turnaround team saw in this opportunity. What has become British Steel is the dream of Nathaniel and Marc Meyohas, the principals of Greybull, who are operators of the highest capability and have brought new life into the industry and the business. I was fortunate to visit their main plant in Scunthorpe last year, where I met the extraordinary team that they have assembled, steeped in expertise, who have transformed its prospects. Recruiting Roland Junck, the globally respected industry figure, as executive chairman was particularly inspired, but the whole top team, who have served the plant for many years, were deeply impressive.
I was struck by two things when I visited. The first was the extraordinary quality of the staff, not just in skill and capability but in motivation. I visited the blast furnaces. In the Scunthorpe plant they are known as the Four Queens. I met the blast furnace manager. With colossal pride, as the molten steel streamed out, he nudged me and said, “You see that? That is schools, hospitals, roads and bridges—all our country’s needs”. The second thing that struck me was the extraordinary technology that is applied there. There are hugely capable and trained staff dealing with all sorts of technologically sophisticated approaches in these very large sites, with large equipment and large sales. The facility has computers almost everywhere and it is able to produce products with the imperfections almost entirely removed and to ever-higher specifications. It is a highly technologically developed business.
British Steel has committed nearly £40 million in new investment and is now making regular quarterly profits. It reversed the pay cut that was taken by the workforce as a means of ensuring the survival of the plant, and it did it as early as it could.
We have witnessed many closures in recent years—some preventable, possibly—with the resulting impact on communities. We have not served them entirely well with their transition. Last year our domestic market share fell to its lowest level on record, with only 39% of the steel used in the UK being produced here. Since 1995 employment in steel has fallen by 59%. I am sure there has always been a debate about what sort of size the market share should be and I think there is a case for 50%, but it is important that that 50% is profitable.
The global production footprint of steel suggests that the UK will not become a global leader in production but it is certainly desirable and deliverable that steel as a strategic necessity for our economy can be achieved, with the right policy framework. It still acts as a vital foundation industry for our world-class automotive, defence and construction sectors, and many others. It is an important part of our innovation and research base and it remains a crucial provider of highly skilled, quality and fulfilling work for more than 30,000 people, with an estimated four times that number in the supply chain.
It is notable that while other European steel industries have also suffered in the face of global headwinds, the UK has fallen furthest and fastest. We have gone from the second-biggest European producer in the 1960s to the fifth-biggest now, behind Germany, Italy, France and Spain. There remains a range of domestic barriers holding back our industry. As the BIS Select Committee in the other place pointed out,
“other European countries have both better valued their domestic steel industry and have been able to withstand global competition more effectively than … the UK”.
Put simply, the cost of doing business here is higher than in most of the rest of the continent.
The UK steel industry has suffered from a series of pressures relating to overcapacity, unfair trade and a competitive disadvantage with European competitors. There is broad agreement among everyone that we have to do a number of things to help: we have to promote UK steel’s use by government and business; we have to tackle unfair trade to ensure free and fair trading practices; we have to provide funding mechanisms for energy-efficient projects; and we have to work on what investment and support is needed in the long term, including skills and education in local communities. Most importantly, and the industry has been right to frame the problem in this way, the unilateral costs that are a direct result of historic UK government policy around electricity costs and business rates are utterly crucial. I believe that the recent initiatives which the Government have undertaken to compensate producers for high energy costs and to encourage government departments to procure UK steel are welcome steps in addressing the fundamental barriers facing UK producers.
However, this is about the fundamental business model. UK steel makes money, but not enough. There is a return on capital gap which is required in order to sustain this industry. For the sort of investment required in new plant, we need to ensure that it has the right level of profitability. It is well established that energy prices and business rates are two areas where we have an uneven playing field. Even after the Energy Intensive Industries compensation package, a 2016 analysis by UK Steel showed that British producers pay an extra £50 million per year in energy costs when compared to their EU competitors. The differential between the UK and Germany has been calculated as an extra £17 per megawatt hour. According to UK Steel, if that differential was removed, British firms would have increased their EBITDA by 70% in the period 2012-14, protecting jobs and enabling crucial investment.
UK steel-makers face business rates of up to 10 times those in France and Germany. We should not be in a situation where building a new blast furnace attracts a six or seven figure hike in rates. The current regime acts as a tax on investment that is not borne by European competitors. For example, in 2010 France reformed its new equivalent of business rates to remove plant and machinery from calculations to deal with exactly this problem; it has worked very well.
I am sorry that it took the steel crisis of 2015-16 to act as a trigger to focus attention. The Government have made some progress but it is too limited at this stage. This is not particularly partial criticism of the Government. There are certainly some matters which are not easy and straightforward. This will take a lot of political will and some careful thought but there is a pressure on whoever comes into government after the election—we can guess who might or might not—to show some renewed effort. There was some previous criticism of the industry’s managers and owners, but since the crisis it is clear that that has changed. New entrants have emerged and the existing quality management has been liberated. The workers in the industry and its trade union have shown not just capability but adaptability and a willingness, as they always have, to be part of a team accepting sacrifices and giving of their labour nothing but sheer excellence.
The industry is in good shape but the policy and regulatory environment is not, and this is where we must focus. We are in times where we can make changes. There have been changes which show that we can take a different approach. It is not just about leaving Europe; there is the opportunity of the industrial strategy. It is not just about the adoption by the Conservative Party of a price cap on energy markets or about progress in energy demand measures. All of these things suggest why doing more on the supply-side measures can be doable and timely.
The steel industry is the epitome of a modern, technologically-driven industry. I would argue that there are more high-tech, highly paid jobs in steel than in the IT sector in general. In business, the achievement is more important than the announcement. In government, it sometimes feels that the announcement is more important than the achievement. We have to set the course straight for what we are going to do to help steel. Others deserve our gratitude for keeping the industry alive and fit for purpose. It is the role and duty of those who make policy decisions on the regulatory environment to take the next steps. I am sure that all Members of the House will work with the new Government to that end.
Lord Jones (Lab)
My Lords, I support my noble friend Lord Mendelsohn’s approach to the steel industry. He has put a coherent and positive challenge to the Government in a most committed manner. For Britain to retain her national greatness, we will always need a steel industry. A great nation must have the capability to defend itself in a time of war. The summation of that is the “defence of the realm”. It is hard to envisage a Britain without a steel industry being capable of defending itself from a hostile nation or nations.
I see that steel is a foundation industry. It is the basic industry and all else flows from steel, even in a digital age of global influences. For our armaments, our manufacturing and our services, steel must always be there. Last year, there was a serious question mark over the British steel industry’s future. Port Talbot, a mighty and productive steel plant, was at risk. Port Talbot has had a great steel record in modern times. It has met every challenge concerning productivity, including the challenges of demanning. Today, Port Talbot is a manufacturing linchpin in Wales, and it must remain so. It is a British manufacturing priority and it deserves to remain a respected steel producer worldwide for its workforce to have secure employment and decent pensions.
I pay tribute to my noble and learned friend Lord Morris of Aberavon, who has been a most successful, long-standing advocate for Port Talbot steel, and I see that my noble friend Lord Brookman is in his place. I humbly say that he was a fine leader of the steel workers’ union for many years. Indeed, he was the lion of the Ebbw Vale steel plant, and at the steel plant in north-east Wales he was highly regarded when a general secretary. He faced up to massive changes in Britain’s steel industry and to many tens of thousands of steel redundancies—a great cascade, almost all at once. He faced up to it, like the workforce he led, in a most noble way.
Britain has four nuclear-armed submarines at the heart of our defence strategy. The Ministry of Defence is currently considering the next nuclear-armed submarine defence strategy. For the life of me, I cannot see Britain backing this core defence strategy without a viable, confident, productive steel industry. Surely Her Majesty’s Government will confirm their commitment to a long-term British steel future, especially emphasising the centrality of Port Talbot in British and Welsh steel production. This is surely a strategic requirement.
In the time remaining, I must praise the north-east Wales steel plant of Shotton, which is my homeland. It is a hugely efficient and most profitable plant. The Shotton team is collaborative and co-operative and always delivers on time. It has won recent significant investment, even at a time of great insecurity for steel both in Wales and globally. It deserves its recent vote of confidence. As a finishing plant employing hundreds, it is, of its kind, the jewel in the British steel crown. Whatever the challenge, the Shotton steel team never falters. We remember when in a previous era it employed some 13,000 steel-workers. Historically, ours has been an industrial steel culture.
I see that the Minister, the noble Lord, Lord Prior of Brampton, is in his place. In another place, quite some time ago, I recollect a Cabinet Minister bearing the same name. The then Secretary of State James Prior was a good Minister in the early 1980s. I faced him across the Dispatch Box, and in those days he was facing the challenge of retraining and employing tens of thousands of redundant steelworkers. He did his best, always, but surely a viable steel industry is now a matter of national security and a priority.
Baroness Redfern (Con)
My Lords, I am grateful for the opportunity to take part in this debate in support of the future of our UK steel industry. I thank the noble Lord, Lord Mendelsohn, for initiating the debate and for his supportive words this evening and acknowledge the Government’s industrial strategy, which gives us cause for optimism—not having one would be a missed opportunity.
I declare that I am an elected councillor on North Lincolnshire Council and chair of the Scunthorpe task group overseeing the Government’s commitment of up to £9 million to support Scunthorpe steel-workers and the local economy through retraining and support for companies in the local area to grow and create new jobs.
Through the good times and the challenging times there is always a sense of spirit and community togetherness—I speak from personal knowledge, as my father worked all his life in the steel industry. Community spirit breeds a determination always to rise to the many challenges that have come along over the years, and I look forward to steel-making continuing in Scunthorpe for generations to come, creating many job opportunities and prosperity for the small and medium-sized enterprises in the supply chain.
Revitalising the steel industry is needed not simply to avert a crisis but because it also represents a great opportunity for steel, which is embedded at the heart of the UK’s high-tech future and is critical to the success of any modern manufacturing renaissance, which the UK requires to compete in a post-Brexit world.
Greybull Capital took over the Scunthorpe steel plant last year after many months of great uncertainty, and a new name emerged: British Steel. The business has developed rapidly, as the noble Lord, Lord Mendelsohn, alluded to earlier, employing hundreds of new people and securing a series of significant new contracts and capital investment of nearly £40 million.
The Business Secretary, Sajid Javid, visited British Steel for the launch on 1 June, and I am pleased to say that during the year there has been regular dialogue with government departments, including the Department for Business, Energy and Industrial Strategy and the Department for International Trade, with British Steel actively contributing to the Government’s industrial strategy.
A key strand of that transformation has seen the company placing great emphasis on engaging with stakeholders. The Scunthorpe plant employs more than 4,000 people in the UK, but it is estimated that more than 16,000 people are employed in the supply chain, working together for all to share the future successes.
Times are changing in the steel industry. Steel has been fundamental in creating iconic awe-inspiring structures around the world. Continuing that means planning for the future for our young men and women, so I am pleased to see the emphasis on training over the past year: already 140 trainees, including 57 apprentices, have been engaged. British Steel Scunthorpe has come a long way in a short space of time and has been buoyed by the pace of change. However, this is the beginning of that journey, and there are areas in which support could be looked at.
Steel is an energy-intensive industry. There is no doubt that energy is a key area and therefore continual dialogue is needed with the Government. Energy remains a major cost: the oft-quoted figure is that the industry pays £17 per megawatt hour more for electricity than some of our European counterparts, so I am pleased that North Lincolnshire Council has secured a government grant to explore ways for the steelworks to become more energy efficient. With new procurement rules, it is vital that we see regular transparent evidence that the public sector is following the new guidance.
New data published for the first time show how the Government plan to use 3 million tonnes of steel in infrastructure projects by 2020, with an emphasis on ensuring that social, environmental and economic factors are taken into account within the procurement procedure. Looking at the capacity and capability, given the fragmentation of the UK steel industry, we think it is also important that the benefits of a partnership approach, rather than having a sole supplier, are embraced. British Steel Scunthorpe wants to work together with its fellow manufacturers and thinks this should be encouraged.
As I have alluded to, times are changing in the steel industry. Steel has been fundamental not only in creating iconic awe-inspiring structures around the world but in research and development. Innovation is key to steel’s future. A great example is Zinoco, the first product of its kind to be manufactured in the world, which creates a premium coated rail product that is 108 metres in length—an excellent example of the ability of the steel plant in Scunthorpe to meet its customers’ needs. Some two-thirds of the steel produced in the UK is in forms that were not invented 20 years ago. However, more support is needed to ensure that British steel provides value to customers that imports cannot.
Business rates, too, have had a significant impact on capital-intensive industries, particularly as many of their competitors abroad pay little or no business rates, so I am pleased with the Government’s response of granting transitional relief to the Scunthorpe plant, which will save it circa £4.8 million over the next four years. Thankfully, measures have also been taken to reduce the dumping of steel.
With the implementation of a bold industrial strategy driving the UK economy forward, we must ensure that the opportunities arising in the next few years are captured as much as possible by our steel industry and that the barriers preventing a fair playing field are addressed and, importantly, resolved to bring further confidence to the business sector.
Steel-making began 127 years ago. British steel has a future. Not only that, it has to have a future. It is a strategic industry, a key foundation industry for construction, automotive, aerospace, defence, rail, oil and gas, renewables and nuclear. Steel is all around us and something we rely on every day and every hour. I wish to see “Made in Britain” stamped on steel used around the world. To those highly skilled, dedicated steel-workers I say: carry on doing what you do well for our strategic industry here in the UK—particularly in Scunthorpe, of course—now and for the future generations to come.
Lord Bhattacharyya (Lab)
My Lords, I declare my interest as chairman of WMG at the University of Warwick. When I started my engineering career back in the 1960s, British steel was respected around the globe. From Bessemer’s processes to Goodeve’s BISRA stainless steel, Britain was the home of global steel innovation.
However, no other nation has treated its steel industry the way that we have since. We did not just throw the baby out with the bath-water, we threw away the bath, the taps, the pipes and sewers. First, we had three decades of contradictory, inconsistent and underfinanced industrial strategies, then three decades of no strategy at all. That left us exposed so that the steel crisis hurt British producers more than our competitors. It is a global crisis. There are over 200 anti-dumping measures listed at the WTO against one country alone. We are at 30% global overcapacity and flat demand, yet steel capacity is increasing by more than 5% a year.
The world steel market is clearly distorted. So local action to ensure a level playing field for British producers is essential. I quote a former steel-worker on what must be done. He said that the Government needed to take “three tangible steps”: first,
“ensure low exchange and interest rates”;
secondly, reduce the “excess costs” that British steel faced versus its European competitors; and, thirdly, take,
“urgent, quick action to bring in anti-dumping measures”.—[Official Report, Commons, 21/10/1998; col. 1201.]
Perhaps President Trump has been listening. The insightful former steel-worker was the Minister, speaking in 2001.
More than 15 years later, we still need urgent action. Ministers described their own business rates policy as “bizarre” two whole years ago, but we still have not heard what will change. The Government said before the previous election that British steel-makers pay twice as much in energy costs as German firms, yet last month, we heard that action on the renewables obligation still needs European approval. In strategic industries, when times are tough, the Government need to offer fast relief. If European agreement is needed, why is steel a low priority in our Brexit negotiations?
I hope that I did not embarrass the Minister by citing his speech. I am delighted that he has been appointed to his job: we need Ministers with passion for their brief. Perhaps I may make amends by telling him that he has an ally in No. 10. The Prime Minister’s chief of staff wrote last year:
“We do not have to accept ‘dumping’”,
and has called our energy policy,
“a monstrous act of self-harm”.
He seems keen to deliver the urgent action that the Minister wanted.
If we are to do more than just slow steel’s decline, our industrial strategy must look well past the current crisis. Since the end of the war, British steel has suffered from underinvestment and instability. We have created a short-term, inward-looking industry. In the 1970s, we spent about the same on R&D as France and Germany, but we did not implement the results. By 1980, we had the lowest proportion of continuous casting of any major steel producer. Under Governments of all parties, steel was left exposed and uncompetitive.
Even now, producers struggle with that legacy, whether on pensions—although we hope that that is now sorted out—or on business rates, energy costs or weak infrastructure. Tata Steel invested more than £1.5 billion since buying Corus. I was heavily instrumental in that. Much of it has gone to correcting the errors of the past. When Tata felt that it had to close last year, it was because it was losing £1 million a day. It knew that much more investment was needed. All it was offered by the Treasury was tea and sympathy. However, there has been some change in attitude in the past year.
That is why our steel industry has declined to the point where Canada, Poland and Belgium all produced more than us last year. This is not a case of a productivity gap—British steel workers are productive and flexible. It is very seldom that they have gone on strike. It is a lack of long-termism, investment and innovation which fetters them.
To put that right, we need to do three things. First, we need to focus on future market requirements. Total steel demand is stagnant, but demand for specialised and advanced, lightweight, high-strength steel will only increase. Further, as a mature market, we can anticipate future trends in reuse, recycling and steel waste. Excellence here will encourage foreign investment as carbon emissions come under greater pressure.
Secondly, we need better infrastructure and procurement. Port Talbot’s lack of proper port facilities hampers its exports, but there is little help for steel producers on future procurement by the Government. Finally, we need to do more to make our innovations impactful. We are doing globally significant materials research in the UK, and we need it to reach the market. The promised steel sector strategy should support investment in steel recycling, advanced materials and improved production processes. The research being done now shows that there are opportunities.
At WMG last month, one of our PhD students won the American Association for Iron & Steel Technology prize for best metallurgy paper by a student, for a paper given on peritectic steel. I would explain what peritectic steel is, but I am sure there is no need. The Economist noted last month that WMG’s research on belt casting and advanced materials could reduce energy used in steel production by one-third. We rightly hear of the need for more diversity in British science and technology; both the research projects that I mention are by women. As the Economist says, this kind of innovation is why producers are considering a new steel plant in the UK.
We need immediate action on this crisis. We also need to support long-term investment, anticipate future needs, increase the commercial impact of our material innovation, and protect our steel market against dumping. That is a huge problem, not just here but anywhere in the world. That is why Trump has just introduced anti-dumping measures. We have had enough White Papers; perhaps it is time for a little bit of white heat. To put this right, we must look at the future market requirements: steel demand is stagnant, but demand for specialised and advanced, lightweight, high-strength steel will only increase. Further, as a mature market we can anticipate future trends in reuse, recycling and steel waste. Excellence here will encourage foreign investment as carbon emissions come under greater pressure. Furthermore, we need better infrastructure and procurement. Now that the problem at Port Talbot has been solved, with the unions and owners agreeing on a 10-year strategy, the lack of Port Talbot’s facilities hampers exports, while there is little help to steel producers on future procurement by government.
Finally, we have to do more to make our innovation impactful. We rightly hear of the need for more diversity in British science and technology, so it is worth saying that both research projects that I mentioned are by women. That is the kind of innovation that we need, and perhaps that is why the Government should spend more time not on talking but on white heat.
Lord Bilimoria (CB)
My Lords, when the Government published their steel pipeline and new procurement guidance, my university contemporary, the Business and Energy Secretary Greg Clark, said that the Government were,
“absolutely clear that we want to do all we can to support our world-class steel industry … This strategy will ensure we make the right investments in science, research, skills and infrastructure so that British industry wins contracts by producing the best goods and services”.
The Minister at the Cabinet Office, Ben Gummer, said:
“By updating our procurement approach on these major infrastructure projects we are creating a level playing field for UK steel”.
I thank the noble Lord, Lord Mendelsohn, for initiating this important debate. The history is there: employment in the steel industry was at 320,000 in 1971 and has now plummeted to 31,000. We export £4.7 billion-worth of steel from the UK and import £5 billion-worth—so there is a small trade deficit there—and 52% of UK steel exports are to the EU, while 69% of UK steel imports are from the EU. So the implications of Brexit for the industry are enormous, and there is uncertainty over future trade relationships with the EU, which will be absolutely crucial.
The All-Party Parliamentary Group for the Steel and Metal Related Industries produced a report this year in which it talked about an “existential crisis”, as the noble Lord, Lord Bhattacharyya, said. The APPG recognised,
“the vital role that the UK steel industry plays in the UK defence, aerospace, automotive industries, and supporting key infrastructure investments in the UK economy”.
It referred to an industrial strategy for steel and said:
“Our economy is unbalanced, tipped in favour of financial services and London and the South East. Essential to building an economy of purpose and resilience will be a renaissance for manufacturing, and for that steel is a key foundation industry”.
In the UK Steel Manifesto in 2016, it was noted again that there was a reduction of almost 60% in the number of people employed in steel since 1995, a 10% drop in UK steel production compared with 2014, and yet an increase of almost 400% in Chinese steel exports compared to 2009. It said:
“The result of the EU Referendum was a blow to the steel industry”,
in the UK. The disparity in energy costs, as mentioned by the noble Lords, Lord Mendelsohn and Lord Bhattacharyya, between the UK and our competitors is shackling the steel industry and preventing it being competitive. The Government must eliminate that price differential in the short term if we are to have a future. They must ensure that major procurement projects use British steel as much as possible, giving the industry confidence, and bring business rates for capital-intensive firms in line with their competitors by removing plant and machinery from the calculation. Does the Minister agree with that? There are barriers to this industry growing—cap ex, new investment and skills. Do we have the necessary skills and R&D, which I will come to later?
The British Government have been accused of disgraceful behaviour for labelling certain industries, including the struggling steel sector, as low-priority before detailed talks about leaving the EU. Can the Minister confirm that? I am a proud manufacturer of Cobra beer, with my joint venture partners, Molson Coors. We are one of the largest brewers in the world. We manufacture in Burton upon Trent in the largest brewery in Britain. Yet the 10 pillars of the Government’s industrial strategy make no mention of manufacturing. Manufacturing was 30% of our GDP in the 1970s; today it is 10%. India has a target to increase manufacturing from 16% to 25% of GDP. We have no such target. Will the Minister say why we do not?
As to the nature of the challenge, according to the Government’s industrial strategy:
“The UK has grown strongly in recent years—by over 14 per cent since 2010, second only to the United States”,
and yet the Government admit that,
“the UK needs to address the productivity gap with other leading countries”.
The Government proudly announce that they are increasing R&D investment by £2 billion a year. We invest 1.75% of our GDP in R&D and innovation, yet the United States and Germany invest 2.7% and 2.8%. If we were to just catch up with them we would have to invest £20 billion a year, not £2 billion. Does the Minister agree? The industrial strategy talks about the impact of universities. Once again, we underinvest in our universities as a proportion of GDP, compared to the OECD and EU average—forget America, which is way ahead of us—yet our universities are the best in the world. Just imagine if we invested the same amount. The industrial strategy mentions encouraging trade, yet the last Budget made no mention of the word “export”.
We know that the steel industry has halved and that China has quadrupled its production since 2000. Yet, as the noble Lord, Lord Bhattacharyya, said, there is a global capacity that exceeds demand by 600 million tonnes per year. The noble Lord, Lord Bhattacharyya, mentioned Tata Steel. Britain should be grateful to Tata for its billions of pounds of investment in British steel over the years. It is one of the largest manufacturers in Europe and has strong links with universities. It has endowed a chair at the University of Cambridge. I declare my interest as chair of the advisory board of the Cambridge Judge Business School. Some 60% of Tata Steel’s sales are to UK manufacturers and 25% are to the EU. The most important thing about the company is that it tries to be innovative. It has said that you must continue to drive innovation, but it pleads for a level playing field on energy costs, anti-dumping and business rates. Does the Minister agree with that? Tata Steel says that the success and future of the steel industry depend on innovation and skills and that the Government need to support periods of transition when the steel industry goes through ups and downs. In the past, the Government have said they would support this industry, yet when the Prime Minister went to India in November she did not even meet anyone from Tata.
The University of Cambridge produced a paper entitled A Bright Future for UK Steel. Once again, this talked about innovation but it also mentioned that half the steel used in this country is in construction. This sector, which has a plan for building lots more homes, employs 250,000 people from the European Union. What are we to do when Brexit happens? I am delighted by the recent news that:
“The UK steel industry has welcomed anti-dumping duties announced by the European Commission on some Chinese products”.
Can the Minister expand on that?
In conclusion, an article in the Financial Times asked:
“Is UK steel really a strategic industry”?
It said that it is to a town such as Port Talbot, but asked how strategic it is when it represents a small proportion of our economic output. Paul Forrest, head of economic research at the West Midlands Economic Forum—I am chancellor of the University of Birmingham—said that 260,000 jobs in his region are part of the steel supply chain. Local sources of steel production are helpful to the UK’s manufacturing ambitions. Nissan’s factory in Sunderland, which is the largest car plant in the UK, buys 45% of its sheet steel from Port Talbot.
Professor Andy Neely, a fellow of Sidney Sussex College and head of the Institute for Manufacturing at the University of Cambridge, said:
“Steel is undoubtedly foundational for so many products—but so is cement or plastics. You can … make the case that steel is a strategic material”.
But what if you can get the supplies from elsewhere? The reality is that the steel for Trident nuclear submarines is supplied from France and the latest generation of Ajax armoured vehicles will use Swedish steel. According to Philip Dunne, the Defence Procurement Minister at the time, no UK steel manufacturer could meet the requirements. There are some implications for sectors such as automotive, which require just-in-time availability, and, where it is available, UK steel plays a role in equipping our Armed Forces. Our latest Queen Elizabeth-class aircraft carriers are built by Tata Steel.
John Louth of RUSI said:
“The quality of British steel has made a big difference to the UK defence industry”,
including for our aircraft carriers. Close to 60% of steel used in the UK is imported, while two-thirds of UK output in the past couple of years has been exported.
I conclude with the words of Professor Andy Neely of the Institute for Manufacturing in Cambridge, who said that while steel may no longer be a vital input, it is part of the strategic argument over the shape of the UK economy. He said:
“If the UK says it cannot compete on steel, where does that process stop? The danger is that you end up saying the same in other sectors and we end up with a hollowing out of the British economy”.
Lord Brookman (Lab)
My Lords, I was a steel-worker from Ebbw Vale in south Wales. My first Member of Parliament was Aneurin Bevan. Growing up as a young kid, I listened to him in the Palace cinema. He was a wonderful man. The works is no longer there. Many people became unemployed, including many of my relatives, so I know a little bit about the difficulties that steel-workers have had in the United Kingdom. I thank the noble Lord, Lord Jones, for his comments about our relationship during my stewardship of the then named Iron and Steel Trades Confederation.
The Question in the name of the noble Lord, Lord Mendelsohn, is relevant. What will be the future of steel? What will be its role in relation to the industrial strategy that we will consider in due course, whoever forms the next Government? I recall a debate in this House on the future of the steel industry. That debate in June 2003 lasted three and a half hours. Therefore, it was much longer than today’s debate and many more noble Lords were present to listen to what was said. It was an interesting debate on the future of steel and manufacturing in general. Some people—not people I can name publicly—believe that we were, and are, living in a post-industrial society, and that steel is not a key issue for the British Government of the day. I am not reading from notes but saying what I feel about the future of steel and manufacturing in general.
The Steel 2020 report of the All-Party Parliamentary Group on Steel and Metal Related Industries has been referred to. I was impressed by that first-class report, which was researched and drawn up by Dr Ian Greenwood. It would be worth the while of everyone who is interested in the future of manufacturing and the steel industry to read it carefully. Dr Ian Greenwood’s work is first class and I am proud to be associated with the all-party group’s efforts to support the steel industry. A group of MPs associated with the APPG—Tom Blenkinsop from Middlesbrough, Jessica Morden, Tom Pursglove, Anna Turley, Angela Smith and Stephen Kinnock—are working night and day to try to ensure that we have a powerful, strong steel industry to support manufacturing.
The facts are pretty clear, and the previous speaker mentioned some of them. The UK steel industry directly employed 320,000 people in 1971, compared with 21,000 in 2015. The report that I referred to points out that the figure is now about 18,000. So let us be honest with ourselves. Are we, and have we been, fighting a losing battle? Are the British people concerned, as noble Lords this evening seem to have been, about the future of the steel industry and manufacturing? I have my reservations about the views of some people on the future of the steel industry, but I am very pleased with my own union. Roy Rickhuss, the current general secretary, has been very active and effective, as have his key officials such as John Paul McHugh, the union’s assistant general secretary. They are fighting tooth and nail to ensure that we in this country have a strong, workable steel industry for the future.
It is some years since I instigated a debate on this matter and I should be interested to hear the view on the position today. In that debate, strongly represented by people from this House, everybody said that we did not have a successful arrangement with the Government of the day for a powerful industrial base, including a strong steel industry. That is central to what we are talking about tonight and it will be in the future. That is why my noble friend’s opening remarks were so relevant. We need to understand clearly what the Government will do to support the very thing that many noble Lords have spoken about today—a strong, competitive steel industry that can hold its head up high in world business.
Lord Suri (Con)
My Lords, I welcome the opportunity to speak in this debate. As we look forward to another election, we should not let issues that do not dominate the agenda slip out of focus, and this is a particularly important issue. It is important, I think, not just for the industry that it concerns but for the wider issue of the industrial strategy. Unlike many in the other place, I think that most noble Lords here will have memories of the old days when the industrial strategy occupied a more central role in government and, indeed, had an entire department structured around it. If the former Members for Chingford and Henley were present, they would have more knowledge than me about that, having been the Ministers responsible. Trade tariffs and dumping were vexed and vexing questions then, and little seems to have changed.
Through the years, I have stuck to the uncompromising view that low tariffs and minimal impediments to trade are the most effective policies for improving growth, and they have the pleasing effect of helping those at both ends of a deal who, after all, are exchanging one thing for another of higher value. The steel industry is an interesting case in point. After we leave the EU, I hope that we will be subject to some sort of deal. It appears that customs union membership will not be part of that, and Ministers will be hassled by the Opposition and special interests to whack up steel tariffs in a post-Brexit round of reviews of industrial policy. However, I feel that to do so would be completely the wrong approach.
Before I make the substantive case, I will make one comment against certain jingoistic points that I have observed. You can indeed buy British steel to build roads and hospitals, but if British steel is consistently more expensive, you will have to build fewer roads and fewer hospitals with your limited budget.
An industrial strategy that works will need to be focused on the work of supporting winners, not picking them. In the post-war economy, which was far more heavily subsidised than now, productivity and efficiency rocketed as subsidies were withdrawn. Services are our real comparative advantage, and they are outgrowing almost all other sectors. They must be helped to grow and expand by our trade strategy. We should insist that all free trade deals on goods be accompanied by some agreement on mutual recognition of regulatory quality of services, or mutual recognition of degrees. Services must feature in the industrial approach to trade.
The primary benefit of this strategy, rather than subsidies, or trying to grow industries from scratch, is that it puts relatively little pressure on the Exchequer. A few guarantees like additional export finance may be put in place, but are tiny to heavily subsidised industry. If the market sees fit for an industry to survive, it will step in with the necessary investment, as ArcelorMittal is showing with Welsh steel plants. Supporting industries with large subsidies when they may not even be close to returning to profitability is an expensive folly. If other countries choose to pursue that policy and then let us benefit from cheap exports, that subsidy has been passed to us and need not be retaliated to. Inefficient industries supported well beyond their time create huge issues. It is not just that they soak up capital that could be used more efficiently, but that the planning is never put in place for their eventual demise.
We should take the lesson of the 1980s and make strong plans for industries in a declining phase. Workers must have strong support and meaningful alternative career options. In this post-Brexit world with lower immigration, there is plenty to do.
Lord Morris of Aberavon (Lab)
My Lords, I have given notice to the Minister that I intend to raise questions on the future of Port Talbot steel. I hope that the Minister will reply either tonight or in writing. I have no present interest to declare, but I was the Member of Parliament for the area for more than 41 years. My first job as a young Minister in 1964 was to supervise the drafting of the steel White Paper on bringing the industry into public ownership. One of the driving forces was the cyclical pattern of world markets and the need to protect the national interest. Have we not seen many cycles since then?
It was my privilege to look after the interests of my constituents working in that part of the steel industry. The lion’s share of my political life was dominated by it. I still maintain—although I am slightly removed—a close interest in their welfare and the future of the plant. I lived through the huge job losses of the 1980s when the labour force came down from 16,000 to under 4,000. The paramount interest of the labour force was to maintain confidence in continuing long-term investment in the plant. The unions, the works council and the management under Sir Brian Moffat saw off the temptation of industrial action and instead put the working conditions of the plant on a firm, workable and economic basis. They worked together to ensure their future.
I had the privilege of opening the huge investment in the continuous casting plant, which I had done a little to secure, as well as opening the reconstructed old harbour. I was a privileged Member of Parliament from the days of a previous Labour Government that built the new harbour at Port Talbot. Port Talbot had all going for it. From the published reports, I see that history is repeating itself and the trade unions have agreed to lower pensions in return for the promise of a long-term future for the plant. However, the pension liabilities of the firm remain—to the extent, we are told, of £15 billion for its 130,000 members.
It is reported that Tata Steel is trying to hive off its liabilities before merging its European steel operations with thyssenkrupp. The talks between Tata Steel, the Pensions Regulator and the Pension Protection Fund have dragged on for month after month. What are the views of the Government about the role of the Pensions Regulator? Is spinning off the pension scheme practicable or would the Government prefer for it to enter the Government-backed lifeboat? I surmise that the latter would be disadvantageous to pensions in the future, although it should not affect the existing workforce, as I understand it. Could the Minister confirm a report that Tata Steel has offered £520 million to the United Kingdom pension scheme in return for relinquishing a guarantee it holds over the company’s assets?
There are significant issues still to be resolved, and the workforce is entitled to know. I raised some of these issues in my remarks during the debate on the Queen’s Speech and the debate on the referendum on 6 July 2016. I criticised the processes of the European Union in its tardiness to take effective and timely action to counter the dumping of exports of steel from China. There are recent reports that President Trump has signed an executive order to assess the impact of steel imports on his military build-up in the United States. The state-owned Chinese steel industry represents half the world’s steel-making capacity. What is the view of the Government on dumping? I ask specifically: given that we are still in the European Union, what representations are they making or have they made in recent years to ensure that the European Union is as resolved as the United States in maintaining British steel in the face of the turbulence of dumped imports?
Lord Stoneham of Droxford (LD)
My Lords, it has been a very full debate and we have all appreciated particularly the personal experiences we have heard from the noble Lords, Lord Jones and Lord Brookman, the noble Baroness, Lady Redfern, and the noble and learned Lord, Lord Morris. There are a couple of themes that I would like to pick up in contributing to the debate. The noble Lord, Lord Bhattacharyya, said that we had wasted three decades for this industry through poor decision-making and a lack of long-term thinking. The noble Lord, Lord Bilimoria, spoke very much about the dangers of the distraction of Brexit and the impact it will have on this industry by damaging the whole sector. I would like to deal with both those points.
In the general election, the Government will promise the country strong government and stability. I would agree with that if it was being applied in the steel industry. The only problem is that the Government promised that at the last election and, within a year, we no longer had an economic plan and we have had all the uncertainty that followed the referendum, which will continue over the next couple of years. What we want in this debate—what everybody has spoken about—is a commitment to a modern, innovative manufacturing sector in which steel will play a full part and where we can genuinely compete with Germany. Steel should be an important component of that future. As we know, currently, our whole automotive industry depends on a huge output of steel from the Port Talbot works.
The other area where we have to look at our competitive advantage is that of specialised steels, which the noble Lord, Lord Bhattacharyya, mentioned. But that needs a long-term plan and long-term commitment. I give some credit to the Government for identifying the problems and raising the questions, but will they address those? They have looked at energy costs, but we know that there are huge problems with energy costs in the sector. They are looking at business rates. I do not know whether the Minister will say anything on that and what help they will provide for manufacturing. To be fair, the Government have also published various documents on improving procurement planning, which are all important. But as we go forward, like every other industrial sector in this country, improving R&D investment and getting a return from that, raising productivity and concentrating on skills development will see this sector prosper.
But what will we get in the next two to five years? We will get complete uncertainty. We have seen that just in the last year with the devaluation of the pound. That creates further uncertainty in the steel sector. Okay, it improves its competitiveness on pricing, but it also adds to its costs. We have no idea what will emerge from the single market free-trade negotiations. As we know, steel components cross borders repeatedly as they find their way into the final manufactured goods.
When the European Community was first set up, I thought that steel was at the heart of it, and so was coal. One of the reasons for that was overcapacity and unproductive resources in both those sectors. To actually get rationalisation was going to be difficult unless there was co-operation and partnership. We know in this sector particularly that if we do not have some form of international co-operation and understanding, the owners, who are huge international combines, will simply pick off individual Governments. Some 52% of steel exports go to Europe. What will happen when we start negotiations on our access to the single market in the Brexit negotiations? The Germans, Spanish, Italians and French will defend their interests. We will lose the co-operation that we have built up over the past few years in Europe trying to address some of these problems.
Those in favour of Brexit will argue that we can take action ourselves against uncompetitive practices and we can get involved in dealing with dumping. But the reality of that is a myth, frankly. If we look at Chinese dumping, China’s total exports exceed the total production of the top five European steel-producing countries. We know that the British Government themselves resisted supporting protection orders in the EU because they were worried about a future relationship for other trade with China. What will happen when everything is up for grabs? Will the steel industry be one of those that will be cast aside in the desperate interests of trying to improve exports to China in other sectors? Brexit is a major distraction for this industry at a vital time. It will encourage the continuation of short-term thinking when we need long-term thinking and it will provide a distraction from trying to deal with the issues that have been raised in this debate.
Greg Clark has done some good work on the industrial strategy, continuing the work done by the coalition, but unless we actually get involved in the detail and deliver the answers to some of the questions and problems that that work is raising, we will not make the progress industrially that this country and particularly the steel industry want. The major problem going forward will be that the Government themselves will be totally distracted by the Brexit negotiations when they should be dealing with some of the problems in this sector.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Prior of Brampton) (Con)
My Lords, I begin by thanking the noble Lord, Lord Mendelsohn, for bringing this debate to the House. It is extremely important. Steel is very close to many of our hearts in this Chamber. It is very good to have the chance to debate it.
I have not yet visited Scunthorpe under the new management of Greybull, but I very much look forward to doing so and meeting the team that the noble Lord met when he was there a few months ago—although I do not imagine he got his new suntan when he was in Scunthorpe. I also mention my noble friend Lady Redfern, who lives very close to Scunthorpe. She mentioned the community spirit and the importance of the supply chain. She mentioned that the jobs of 16,000 people were dependent on the supply chain of the Scunthorpe steelworks, so when we talk about steel we are talking about many other industries as well.
The noble Lord, Lord Jones, referred to steel as a foundation industry. He is absolutely right. He spoke about Shotton. I visited Shotton only a month ago. It is wonderful to see the coatings plant there, but it is pretty sad to see where once there was a great integrated steelworks.
The noble Lord, Lord Bhattacharyya, mentioned that when he was growing up as a young engineer in the 1960s Britain was seen as the home of steel. He said that for many years, really since the war, the British steel industry has suffered from underinvestment for all that time. I think he said that in 1980, despite having invented continuous casting in this country, which was a fundamental technological breakthrough for the steel industry, we had the lowest percentage of steel made through continuous casting—a pretty damning condemnation of our industry at the time. I think of how much investment went into two steel plants, Llanwern and Ravenscraig: both were undersized, in the wrong place and underinvested. However wonderful and flexible the labour force is, if the strategy is fundamentally wrong, as those two plants were, in the long run nothing can save them.
Listening to the noble Lord, Lord Brookman, I could almost see in my mind two people that I am sure he remembers from those days: Bill Sirs, who was general-secretary of the ISTC, and Hector Smith, who was general-secretary of the National Union of Blastfurnacemen at the time. He spoke with great passion about Ebbw Vale.
I did not agree with many of the words of the noble Lord, Lord Bilimoria. I did not recognise his characterisation of our industrial strategy Green Paper; I did not see where he was coming from. We are absolutely committed to a strong and competitive manufacturing sector in this country. I reassure the noble Lord, Lord Stoneham, that we are calling for a modern, competitive industrial sector in this country. It has to be long-term; there is no point having an industrial strategy for the length of just one Parliament. Whoever wins, I hope that after the next general election we can have some consensus over that. If we cannot have consensus over the long term, how is industry to have it?
The noble and learned Lord, Lord Morris, raised pensions. I have to declare an interest as a member of the British Steel pension scheme, so I cannot address his particular issues. If the officials can write to him after this debate, I will arrange for that to happen.
For me this is Groundhog Day. When I joined British Steel in 1980 we were producing 15 million tonnes of steel a year. We had five integrated sites. About 200,000 people worked in the industry. Since then, 30 years have passed. What makes it Groundhog Day is this: the problem in 1980 was fundamentally one of overcapacity, which led to low prices. In the trading year 1979, British Steel lost £309 million. I could not find the figure, but my recollection is that in 1980 it lost £700 million. In today’s money, that is £3 billion to £4 billion.
In those days, new capacity was coming on, largely from Japan, closely followed by South Korea. Japan installed 100 million tonnes of capacity. It was low-cost capacity; it was all on deep water. It was all highly productive; it was new technology. It was all continuous casting and of great quality. To our shame, most of the steel that went into the pipelines in the North Sea to bring ashore oil and gas was made in Japan and not by British mills. Much of the steel going into the Ford Motor Company at the time had to come from abroad because we could not meet the quality requirements.
Today, we have a similar problem but from a different country: it is of course China. Its steel production capacity is hard to measure, but it is probably around 1 billion tonnes. If we put that against our total UK production in 2016 of a little over 7 million tonnes, it sets our industry in some kind of context. Chinese steel production has increased sixfold since 2000.
As China has exported into other Asian markets so they, too, have exported in return into the western European markets. In a high fixed-cost industry such as steel, the temptation to marginally price is hard to resist, so we have had extremely low prices for a long time.
As has been pointed out by noble Lords this evening, particularly the noble Lord, Lord Bhattacharyya, we had an extraordinary inheritance. The Industrial Revolution started here. The iron and steel industry started here. There was the open hearth process and continuous casting. We invented stainless steel. British-made steel products are seen in iconic buildings and structures all over the world.
Despite that, since the war, with the uncertainties of nationalisation and denationalisation, we suffered from persistently low levels of investment. Where we did invest, I am afraid that the involvement of politicians was not a happy one. We would not have had Ravenscraig here and Llanwern there had it not been for, with hindsight, mad political interference. At Redcar, we had a one-blast-furnace operation. That is not a viable strategy for the long run. The whole concept of producing on Teesside low-value, semi-finished slabs from iron ore and coal coming in from Australia and Brazil, and then re-exporting those slabs back to Thailand, was hardly a strategic decision of great genius. Even today—if we are honest—although the configuration with two integrated sites is where we need to be, those two sites are not ideal. It is not ideal to have coating plants at Shotton and hot rolled coil being made at Port Talbot. It is not ideal to be making blooms and billets at Scunthorpe and to have the finishing section mills on Teesside. While those plants are not ideal, they can be competitive, but we must be realistic that they will not be as competitive as those fully integrated plants that we see on deep water, with modern equipment and modern investment, in other parts of the world.
Nevertheless, we have reached the point where we have two integrated plants in the UK and not five, which is a huge improvement. We also have a very important scrap-based electric arc business in Sheffield and south Wales. Again, given the right investment, these should be competitive given the availability of scrap. We export 7 million tonnes of scrap a year from this country. Surely we can do better by melting more of that in the UK.
The overall numbers for the UK are grounds for encouragement. UK steel demand is around 10 million tonnes a year, which is roughly in line with our capacity. If we add in the steel of imported manufactures, we see that we consume 22 million tonnes a year. If some of that manufacturing can be reshored to this country over the next five to 10 years, then that gives even bigger opportunities for our domestic producers.
Much has changed since this House was last formally updated in April 2016. As noble Lords mentioned, Greybull Capital acquired Tata’s long products business based in Scunthorpe. In September, the two Scottish plate mills, at Dalzell and Clydebridge, re-opened under Liberty Steel’s ownership, following their acquisition from Tata. More recently, Liberty Steel announced it had agreed a sale and purchase agreement with Tata for the speciality steel business in South Yorkshire. At the same time, Tata Steel Europe remains in negotiations with regard to a possible joint venture with thyssenkrupp. So much is going on in the ownership of the steel industry but in a sense having a clear separation of special steels, long products and strip mill products is no bad thing. They are three very different businesses with different markets and different manufacturing processes.
I also acknowledge the efficiency savings and productivity improvements realised at Port Talbot by the Tata workforce. The noble Lord, Lord Bhattacharyya, and others referred to the flexibility and spirit of the workforce both at Port Talbot and in Scunthorpe.
I then turn briefly to the actions the Government have taken. We are compensating energy-intensive manufacturers such as steel for the costs of renewables and climate change policy. To date, we have paid over £151 million to the steel sector. We secured flexibility over the implementation of EU emissions regulations. The Government introduced revised steel procurement guidance, as has already been noted, to ensure that UK steel producers have the best possible chances of competing for public sector work. We provided a procurement pipeline for steel to ensure that the UK sector has every opportunity to prepare to meet this future demand. We also successfully pressed for the introduction of trade defence instruments to protect UK steel producers from unfair steel dumping. There are now 41 in place in the EU. Yet in my experience of anti-dumping, it is always too little, too late—it always takes too long because the damage is done before the actions can take place.
I have not got much time and it is late in the evening. We are open to a sector deal for steel. Anyone who thinks that steel is a low priority has misread the runes. We put it to the UK steel industry that it is in its hands to come forward with a proposal for a sector deal. Of course, it is entirely up to the industry what is in that sector deal but I would certainly expect it to focus on: technology; investment, clearly; training; how we can go further up the value chain; how we can look at new products—the new rails at Scunthorpe were mentioned and that is exactly the kind of thing we should do—lower energy uses; and how we can make better use of the surplus scrap available in the UK.
There can never be a guarantee about the future of any industry at a time of such extraordinary technological disruption as is going on in our markets. However, this industry in the UK has been resized. I must believe that there is a long and profitable future for the UK steel industry. We are committed to a strong manufacturing base in this country and steel is a vital part of a long-term supply chain for many industries. You cannot build a manufacturing base buying on a spot basis from overseas. That is not a viable way of securing that. So I am optimistic about the future. It has been a long and traumatic journey and struggle for this industry. Many lives have been ruined along the way because of poor strategic decisions taken in the past. However, now the structure of the steel industry and the commitment of companies such as Tata to it give me great hope for the future.