Steel Industry

Lord Vaizey of Didcot Excerpts

Tuesday 14th October 2014 Westminster Hall

[The Minister for Culture and the Digital Economy (Mr Edward Vaizey)]

It is a great honour to speak under your chairmanship, Mr Turner. I apologise for the fact that I am the Minister responding to this debate. The Secretary of State is in India, and my right hon. Friend the Minister for Business and Enterprise, who has responsibility for energy, is in a Bill Committee. However, I am a Minister in the Department for Business, Innovation and Skills, and I was recently promoted to serve in that Department as well as in the Department for Culture, Media and Sport. That is despite the fact that The Guardian described me as a Liberal Democrat who had not been promoted and who sat in Cabinet, all three of which are wrong.

I am grateful to the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) for mentioning my late father’s book, “The History of British Steel”, of which I just happen to have brought a copy. I hope that the hon. Gentleman will indulge me for a moment, because it is the 40th anniversary of the publication of that great book. The hon. Gentleman’s illustrious predecessor, the late Ashok Kumar, and I became good friends because he stopped me in the corridor one day and said that he suspected that even though I was in the House, he was the only Member of Parliament who had read “The History of British Steel” by John Vaizey. That was true at the time, but I have since rectified that. That remarkable text highlights the ups and downs of the British steel industry, which has gone through many crises in its 170-odd year history. Many of those difficulties were caused by political interference, but quite a few were caused by stiff competition, particularly in the early 20th century from America.

The hon. Gentleman ended his remarks on a positive note, not only by kindly mentioning my late father’s book but by talking about the resilience of the British steel industry. It is important to focus on an industry that still employs 300,000 people. The north-east has a proud history of steel making and manufacturing, and I am particularly delighted that the former Tata Steel plant at Redcar is once again producing steel for customers around the world under its new owner, SSI Thailand.

The UK continues to make manufactured goods. A successful manufacturing sector remains the key to driving the innovation and exports that are crucial to productivity growth in the UK economy, and the steel industry has an important role to play in generating future economic growth. The hon. Gentleman talked about the supply chain. Our steel industry underpins a number of key advanced manufacturing sectors and sustains the livelihoods of many local communities, particularly those in his constituency.

Steel is found in skyscrapers, washing machines and almost any essential goods that one might care to mention. The modern steel industry has made huge technical advances. I am told that 75% of the types of steel used today have been developed in the past 20 years. If the Eiffel tower were rebuilt today, we would need to use only a third as much steel as was used when it was built. Modern cars use new steel that is stronger but 35% lighter.

As the hon. Gentleman and I have already said, steel is a critical part of the supply chain for high-technology industries such as aerospace, automotive and construction, all of which require high-value, continually improving steel products. We remain committed to a healthy and growing steel industry in the UK. There will always be a need for steel, but we must consider our steel industry in the context of the global economy, as the hon. Gentleman did. He highlighted the impact of energy regulation and imports, which I hope to address in my remarks.

As I said at the outset, the steel industry is notoriously cyclical. It has booms, but major slumps in prices and output have occurred regularly throughout its history. The sector is emerging from a downturn that is considered by many industry insiders to be more extreme than any other in living memory. Half of steel output is used in construction, an industry that suffered more than most during the recession. Despite renewed economic growth, demand for steel is still well down compared with before the crisis hit and is not expected to grow substantially this year. High energy costs, which I have already mentioned, and chronic overcapacity in the wider European steel industry have also affected prices, squeezed profits and hit investment. UK steel companies, like their competitors, have been forced to make uncomfortable decisions, and it is regrettable that Tata Steel has reduced its work force by 25% and its UK operating and production company by more than 20%.

[Nic Dakin]

I congratulate the Minister on his speech so far. Despite all the challenges that steel has faced, and following the great work by workers in my constituency and across the country to get the steel industry to where it is today, will he make it clear that the Government are committed to working with steel workers and steel companies to ensure that there is a steel industry for the future, whatever bumps and troughs there may be in the road as we move forward, so that it can be a foundation to move this country forward, as it has been in the past?

[Mr Vaizey]

I am happy to make that clear. The Government are unequivocal in their commitment to the UK steel industry and will do all they reasonably can to support the industry as it faces the hurdles and obstacles in achieving fair competition. No one denies the climate in which the UK steel industry operates, and we were saddened to hear the announcement last month that the ESCO Corporation foundry in the constituency of the hon. Member for Middlesbrough South and East Cleveland will be closing with the loss of 65 jobs. This will be a very difficult time for all those affected, but I am encouraged that the company will continue trading until the end of the year, particularly as that will hopefully allow employees time to secure alternative employment. A talent retention solution that helps skilled employees affected by redundancy to find jobs in other engineering companies should be able to assist in that regard. He also raised concerns about the current financial position of the SSI integrated steel plant at Redcar, and there are clearly challenges ahead, but the situation is not as serious as recent press reports suggest.

[Tom Blenkinsop]

I did not mention the financial element of SSI because I agree with the Minister. When financial reports are released, they usually provide a 12-month outlook, but the company and its work force have done a lot to overcome many of the barriers. We must send a positive message about SSI because it is coming out of a difficult period.

[Mr Vaizey]

Exactly. I should have said that the hon. Gentleman made it clear that the reports about the current financial crisis at SSI are inaccurate because, of course, there has been investment in new product. In June 2014, the operation turned a profit for the first time since the plant was restarted in April 2012. The plant is currently running at 85% to 90% capacity, and its product is being bought by customers in Canada, the USA, Mexico, Germany, Italy, Turkey, Australia and Thailand. Despite the difficult trading climate, the UK remains a significant player in the global market, although there is no room for complacency. In August, the UK replaced France as Europe’s second-largest crude steel producing country, which was the first time that we have had a higher output than France since January 1997. We have also overtaken Italy for the first time in 17 years. The UK’s steel output has increased largely on the back of new investment and improving efficiency, which is also driving production to record levels not only at the integrated steelworks at Redcar but at Port Talbot. The latest figures show that crude steel production between January and August 2014 increased by almost 7%.

As I said to the hon. Member for Scunthorpe (Nic Dakin), the Government want to assist in any way they can. We work through all channels, at both ministerial and working levels, to ensure a free-flowing, constructive dialogue with UK steel companies. We work closely with the steel industry on a range of issues, including minimising regulatory burdens and regulations, but of course EU state aid rules limit the direct help that can be offered to steel companies. We cannot offer operational aid, but we can offer aid on research and development, environmental protection and some training. Working within EU rules, we are implementing a £7 billion package of measures to address energy costs, including £3 billion to compensate energy-intensive businesses for the impact of policy costs on their electricity bills. We are also directly supporting the long-term future of Tata Steel activity in the UK. We approved £8.2 million of Government funding to support a new R and D centre at Warwick, which is on top of the £20 million offered to Tata over the past three years to enable further investment in R and D. Through the advanced manufacturing supply chain initiative, we have also offered just over £12.7 million towards the £22 million proving factory specialising in the industrialisation and low-volume production of advanced propulsion systems to automotive standards. Tata is a key partner in that project.

We are also working to help the steel industry to win orders. The national infrastructure plan includes 500 projects worth a total of £250 billion for 2015 and beyond. That figure includes more than £1 billion in railway infrastructure. It has also been announced that 95% of the steel for the UK’s rail network will come from Tata Steel for the next five, and possibly 10, years. Who knows? That may continue as we move forward with HS2. Those products should make a difference by stimulating demand for steel, thereby creating significant supply chain opportunities.

The hon. Member for Middlesbrough South and East Cleveland talked about the impact of climate change regulations. I have mentioned the £3 billion support package that we have introduced to offset the indirect costs of the emissions trading system. He said that some of the regulations are simply beyond the technical capacity of any company working in the steel industry, but my understanding is that there will be an opportunity in the next few months to work with the European Commission on the new package that will be in force from 2020 to 2030, so that the regulations can be made more realistic. I will ask my colleague, the Minister for Business and Enterprise, to write to the hon. Gentleman to address his concerns that not enough compensation has so far been paid out to electricity-intensive industries. He is correct that 53 businesses have received just over £41.3 million, but I will check with my colleague whether there is a hold-up on paying out for other issues.

The hon. Gentleman also mentioned Chinese rebar imports. BIS officials have raised concerns with the European Commission, and we understand that the Commission is still considering the possibility of opening an anti-dumping investigation. We will consider the evidence providing by the Commission, but at this stage we would support any Commission decision to open an anti-dumping investigation.

This debate on the UK steel industry has been important. As one would expect, the hon. Gentleman and his colleagues have highlighted critical issues for industries that are incredibly important not only to their constituents but to the economy of the UK as a whole. I will take his remarks in the spirit in which they are intended, and I will take them back to the Department. I will highlight his perfectly understandable concerns about the impact of climate change regulation on energy-intensive industries and the possibility of reform. He has expressed concern about imports from outside the EU that may have a large carbon impact. His focus has been on ensuring that there is provision to secure the supply chain. I hope that he and his colleagues have heard the message that I have tried to convey as a relatively new Minister in this field, which is that the Government take the steel industry seriously and will do all within their power to help.