Sheffield Forgemasters

Angela Smith Excerpts

Wednesday 21st July 2010 Commons Chamber

[Mr Betts]

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

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

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

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

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

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

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

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

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

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

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

[Angela Smith (Penistone and Stocksbridge) (Lab)]

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

--- Later in debate ---

[Mr Prisk]

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

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

[Angela Smith]

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

[Mr Prisk]

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

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