Thamesteel

David Mowat Excerpts

Wednesday 21st March 2012 Westminster Hall

[David Mowat (Warrington South) (Con)]

It is a pleasure to serve under your chairmanship, Mr Davies, and I congratulate the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) on his remarks. I associate myself with his comment on blast furnaces. The first time I saw a blast furnace in Port Talbot was a formative experience for me. Every hon. Member would benefit from spending some time in front of a blast furnace.

I want to talk about one aspect of the issues facing energy-intensive industries such as steel, aluminium, ceramics and cement—that of energy prices. I shall focus on one of the drivers that we can do something about while still meeting our carbon reduction commitments.

Today, business in the UK is paying around €10 a unit for electricity. If a business were located in France, that figure would be €7 a unit, which is the business rate. That is a difference of about 40%, and a very significant margin. That factor is important in the decisions being made. It is not true that our energy prices are more than those across Europe generally—our gas prices are cheaper than nearly everywhere in Europe—but electricity is expensive and continuing to get more expensive. It is hard for a Government to drive an industrial strategy that involves rebalancing the economy when energy prices are on an upward track relative to our major competitors. That is the issue.

About 18 months ago, I received a written answer from the Department of Energy and Climate Change stating that 18% of business energy costs were caused by our green—or our renewables—policies, which is a large chunk. That figure is set to rise to 30% by 2020. What matters is what that means relative to our competitors. It is not possible for gross domestic product to grow if energy is expensive. As we move from a service-based GDP to what I hope is a more manufacturing-based GDP, costs will be more in terms of energy per unit of GDP developed.

This is not about climate change. There are two aspects to what we are trying to do with our energy commitments: reduce carbon and go for renewables. The Climate Change Act 2008, which was rightly passed by the previous Government, committed us to an 80% carbon reduction by 2050. That is about the hardest thing I can imagine doing while we continue to grow the economy. A year later, the same Government signed up to an EU directive that said that, as well as an 80% reduction, we would produce 30% of our electricity from renewables by 2020. That is a contradictory objective. There is nothing in the first objective that says we have to go for renewables at the pace and scale we did. We could have gone much more quickly for nuclear power, or for carbon capture and storage—even more quickly than we are doing now, and I concede that the Government are moving in that direction.

There is a serious consequence here. We have two deltas in energy costs for companies such as Tata, Alcan and others: the delta of increased energy costs due to the need to meet our carbon commitments, which I accept as we have to do our bit, and the additional delta, over and above that, to meet a large component of that carbon commitment through renewables—a larger component than if we had just tried to minimise carbon at the lowest cost possible, which would have created the most jobs. I have sat through many debates, hearing about job losses related to the solar tariff. I remind hon. Members that the tariff was 43p a unit of electricity—the feed-in tariff that the Government belatedly cut. In France, electricity is being generated at 6p a unit. That is not sustainable: it has to be paid for by somebody and the buck is stopping at companies such as Tata.

The Government are continuing to do a lot in their industrial policy, and with the growth fund, which is far more focused towards the north of the country than the regional development agencies were—apprenticeships and all that goes with them. Energy prices are critical, and unless we get them right that will all be for nothing. The £250 million is welcome and is directed at the energy-intensive industries, but that is an error in focus, too, because all manufacturing requires energy. It is a continuum. There are not just a few companies at the top using a lot of energy; all manufacturing companies use energy. If they are paying 18% or 20% more than their competitors as a result of the Government pursuing policies that we do not need so as to meet our carbon commitments, the penalty will be job losses. Unfortunately, the jobs that have been lost are marginal jobs. They tend not to be seen in the same way, perhaps, as jobs in a solar company or a wind farm company, which are very high profile and all that goes with that. The Government need to focus on that and get it right.

[Several hon. Members]

rose—

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[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) on securing the debate. It was evident, during his passionate and emotional contribution, that he has steel—Teesside steel—coursing through his veins. He is a massive champion of the UK steel industry.

I shall concentrate on two broad things, and I hope that the Minister responds positively to both. First, I am keen for the Minister to set out the role that he anticipates the steel industry will play in the modern British economy. It is evident that we Opposition Members believe that a productive, thriving and competitive steel industry is an essential part of a modern, prosperous British economy. Steel is a vital component of the industrial sectors in which Britain currently has a competitive advantage and through which we hope to lead the world in future, such as oil and gas exploration, chemicals, aerospace, offshore wind technology and automotives.

It would be unsatisfactory to believe that we in the UK could rely wholly on imported steel from overseas because, somehow, it can be sourced at much cheaper cost. Such reliance would make us vulnerable to supply difficulties, quality concerns and price shocks and in the long run would undermine British competitiveness. In addition, the UK would miss out on valuable research and development opportunities. Tata’s Teesside technology centre at Grangetown, for example, focuses on long product research, which helps our nation retain our valuable manufacturing expertise. Similarly, Tata’s automotive engineering group, again, based in the UK, is essential for developing new generation steel for the automotive industry.

It is strategically important that we in Britain make steel. I hope that the Minister agrees and states what I hope is his strong belief, which we in the Opposition would support, that a thriving steel industry in the UK is a necessary part of a balanced economy based on manufacturing. As we have heard in this debate, we would also expect him to ensure that, as part of active and intelligent government, the Government provide an effective industrial strategy in partnership with business. That is not to pick winners, not to protect lame duck companies and not to embrace protectionism, but to recognise the vital role that British-made steel plays in our economy and to use the power of Government to help support that.

We have heard that the steel industry is notoriously cyclical and subject to difficulties. Cost pressures, especially in raw materials, are increasing. Demand for the product is falling, especially in Europe, and even in China in the last quarter, and steel manufacturers around the world are running down inventories rather than boosting output, and Thamesteel has been an obvious victim. I understand that this is a global matter, but the Government have real power here. What has the Minister done to ensure that he can intervene to stimulate demand to provide support for our steel industry?

We have heard time and again in today’s debate how measures such as the carbon floor price are impacting on energy intensive industries such as steel. It is estimated that British industry and British producers are paying up to 50% more in energy costs than their counterparts in France, the Netherlands or Germany. I anticipate, or at least hope, that the Chancellor will say something about this matter in his statement this afternoon.

[David Mowat]

Will the hon. Gentleman give way?

[Mr Wright]

I hope the hon. Gentleman will forgive me if I do not. I have a lot to get through in only seven minutes.

What active role are the Minister and other Department for Business, Innovation and Skills Ministers taking to mitigate some of these additional costs for industry, as is happening on the continent, where the French and German Governments are helping to mitigate such cost pressures?

My hon. Friend the Member for Scunthorpe (Nic Dakin) mentioned the supply chain. What are the Government doing to help establish and nurture a UK supply chain, particularly for the renewable energy sector? We have the biggest market anywhere in the world for offshore wind, and steel is a large part of the manufacturing process. However, the industry estimates that only about 10% of the components going into offshore wind installations are British-made. Tata Steel is investing £9 million in its world-class pipe mills in my constituency to increase the possibility of winning contracts for offshore wind component manufacturing, but the company needs the Government’s active support to ensure not only that there is a level playing field for British steel manufacturers, but that those manufacturers get on the pitch in the first place.

The Teesside offshore wind farm is a good example. It is a major contract that involves 27 turbines off the coast of Redcar, each requiring a monopile using approximately 400 tonnes of steel plate. Tata Steel could have manufactured that plate in the UK at its Scunthorpe plant and used pipe mills in my constituency and elsewhere across the UK to process the plate. However, as we have heard, the contracts have been awarded wholly to Dutch and German steel manufacturers. Why is this allowed to happen? Clearly, the Government are not doing enough to support the creation of a UK supply chain to help steel.

Unless BIS takes a more active role and interest in this matter, the economic benefits in moving to a low-carbon economy will be exported to foreign competition at the expense of British-based jobs. The Minister needs to explain how he will help to create and support the supply chain, which would benefit the likes of Thamesteel and Tata. For example, why do not the licences for such wind farms require a certain proportion of components to be British-made? Why should not at least one British-based manufacturer be invited to bid for every contract? What are BIS Ministers doing to ensure that steel jobs and steel companies based in Britain can benefit from the transition to a low-carbon economy?

Secondly, I want to ensure that Thamesteel and its workers have as positive a future as possible and that the Government are working hard and energetically to support that end. Thamesteel is not a lame duck or an obsolete company whose time has passed. It was regarded as one of the fastest-growing steel manufacturers in the UK. In 2010, which was a difficult year for the construction industry, Thamesteel sales stood at £200 million, and it produced more than 100 tonnes of steel an hour, which was a plant record. There seems to be a strong prospect of a viable business. In that light, will the Minister outline what he, his Department, including other Ministers, and the wider Government are doing to secure a buyer for this business that is not focused on asset stripping? What brokerage is his Department providing, between the administrator and potential buyers, as a means to send out a message to the market that the Government value the steel industry and its component firms, such as Thamesteel? How have Ministers been directing the approach to this matter? Specifically, I should like the Minister to tell us what meetings BIS Ministers have had in this regard.

As my hon. Friend the Member for Middlesbrough South and East Cleveland said, the previous Government rolled up their sleeves and got their hands dirty trying to negotiate a deal, thanks to my right hon. Friend the Member for Wolverhampton South East (Mr McFadden). In respect of the Thamesteel workers, are the Government not only not getting their hands dirty, but merely washing their hands and saying that the company is no longer viable? That would be a tragedy, not just for the 400 workers, but for the local businesses and the supply chain that rely on the firm and for the wider steel industry in this country.

How is the Department linking up with Kent county council, which I understand has set up a taskforce? Is BIS providing a co-ordinating role to ensure that the local authority, good trade unions such as Community, local chambers of commerce, further education institutions such as MidKent college, and local businesses are all co-ordinated and pulling together in the same direction to help Thamesteel be viable? Is there any waiving or deferral of business rates to encourage people who want Thamesteel as a going concern to make that happen? Why do Ministers not have more of a sense of urgency or imagination about this matter?

The workers have rightly been a key concern for hon. Members. Many workers have not been paid since a couple of days before Christmas and are now, as we have heard, having to resort to receiving food parcels. The hon. Member for Sittingbourne and Sheppey (Gordon Henderson) made the point in BIS questions last Thursday, and he rightly did so again this morning, that when a company goes into administration, the wages owed to its staff should be the top priority. In his response to the hon. Gentleman, the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for North Norfolk (Norman Lamb), said that he agreed

“that the interests of workers should absolutely take priority” —[Official Report, 15 March 2012; Vol. 542, c. 376.]

He resolved to look into the matter.

Given the urgency of the situation, will the Minister update hon. Members about what can be done to ensure that amounts owing to workers are the top priority and that they are paid? What are the Government doing to ensure that workers receive redundancy packages? Will the Minister update us about on the current situation? Three months after many workers were last paid, the need to ensure that redundancy packages are provided immediately is urgent. Can he confirm and reassure me that all Thamesteel workers have now been provided with their redundancy packages?

The Department needs to act with a greater sense of determination for the wider good of the UK steel industry and for the welfare of 400 workers at Thamesteel. The Minister needs to have listened to the debate; he needs to act; and he needs to act now.