Sector Deal for Steel

Nic Dakin Excerpts

Tuesday 19th December 2017 Westminster Hall

[Nic Dakin (Scunthorpe) (Lab)]

I congratulate my hon. Friend the Member for Aberavon (Stephen Kinnock) on securing this well-timed debate on the steel sector deal. It was good to hear the hon. Member for Middlesbrough South and East Cleveland (Mr Clarke) contributing so knowledgeably to the debate. He fills really big shoes on steel. Our former colleague, Tom Blenkinsop, was a tower of strength and had a real passion for this industry; I know that he continues to fight for it from outside this House and we all wish him well.

Two years ago local steelworkers and their families were worrying about their futures as Christmas approached. The same was true in steel communities across the UK. Horizons were short, confidence was low and, despite the marches, speeches and protests, Government seemed deaf to calls from the sector to level the playing field and stand up for steel. Jobs and livelihoods were at risk.

A lot has happened since the height of the steel crisis in October 2015, when the Government held the steel summit, which I had first called for in Prime Minister’s questions, in Rotherham on a day that saw yet more announcements of steel job losses nationwide, which were added to the nearly 2,000 in Redcar. The steel landscape now looks very different, with Tata no longer the dominant steelmaker in the market. Instead we have three major players: British Steel and Liberty, both with strong presences in Scunthorpe and elsewhere, and Tata with its main presence in south Wales. This change in ownership has brought new energy to the industry. Building on its proud heritage and today’s strong footprint, the foundation industry of steel is now well placed to become a strong strategic, innovative, entrepreneurial industry of the future. But to realise that ambition it needs to be allowed to compete on a level playing field, and that is where Government have a key role.

British Steel is an old name enjoying a new start. Headquartered in Scunthorpe, it celebrated its first year of successful trading in June. It is a leading European producer, making around 2.8 million tonnes per annum. The business faced challenging operational issues in the summer, including a blast furnace chill that impacted on results, but it expects to have a strong second half-year performance. The conclusion of a 4% pay deal with the workforce is both a strong vote of confidence in the fantastic men and women that make the business happen and an indication of growing business confidence. As well as achieving a significant turnaround of the business, British Steel continues to invest in future skills including, this year, the new starts of 70 apprentices, 43 graduates and 72 trainees. Next door, Liberty is breathing new life and new purpose into Caparo Merchant Bar. It is good news that the Scunthorpe site has been longlisted as a possible Heathrow logistics hub. That is a good example of proactive procurement by a major customer that others might learn from.

Indeed, while everything has changed in steel, nothing has changed, and the four asks of Government at the height of the crisis remain significant asks today. Procurement is a key ask. The Government need to do more to ensure that their December 2016 steel procurement guidelines are being actively pursued by all Departments, including the Ministry of Defence. When I asked for an update on delivering their ambition the Cabinet Office reply was: “We do not hold data currently on the quantity of UK steel procured.” Frankly, that is not good enough. While I very much welcome that published pipeline for future steel, it still begs the question of how the Government will ensure that their guidelines are delivered across all Departments. Perhaps the Minister—who I believe in, actually—will enlighten us in her reply.

Alongside better, fairer procurement, the other key asks were action on energy costs, business taxes and tackling steel dumping from China and elsewhere. Add to that the need to invest in research and development and workforce skills, and that is the context in which the sector deal is being wrought. We need a sector deal for steel sooner rather than later. I have been heartened by the consistently warm words of the Secretary of State and Minister responsible in response to these calls. They eventually managed to do a good job of putting something together on the EU emissions trading system, but things like that need to be done quickly and effectively so that confidence is not knocked. We need to learn from that so that things can be done well in the future, because the time for warm words will soon be over, and the time for action is nigh.

The Government recognise the value of the steel industry. Their recent study, “Future Capacities and Capabilities of the UK Steel Industry”, demonstrates the size of the prize in capturing more of our domestic steel market. UK Steel estimates that there is potential to boost sector GVA from £1.2 billion to over £3 billion. The study identifies the key role that supply chain engagement and R and D can play in enabling that boost to happen. Three core actions will unlock the sector’s potential: action to level the playing field on energy costs, investment in new research and development through a future steel challenge fund, and incentives to facilitate capital investment. The key commitments that the sector will make are outlined in the document. There are significant commitments from the sector, and the asks of Government are significant to match. The sector and the Government need to work together to deliver that.

To conclude, two years ago we felt as though we might be close to closing the book on steelmaking in the UK, but thanks to the wonderful men and women who work in the industry and the leadership shown by Community, Unite and the other steel unions, alongside steel communities and steelmakers, in the last two years this industry has navigated a difficult chapter, restructuring and repositioning itself. It is now time for Government to act with the industry to create the strong, innovative business that is needed to help to build Britain’s future as we move into a world outside the EU. The steel sector deal bid from the industry shows the necessary commitment to deliver for the future. The Government have welcomed this. Both sides must now forge a future together. All I want for Christmas is a steel sector deal!

--- Later in debate ---

[The Minister for Climate Change and Industry (Claire Perry)]

As always, Sir Henry, it is a pleasure to serve under your chairmanship.

I congratulate the hon. Members who are present today on securing an absolutely crucial and timely debate. I also echo the good wishes that have been expressed about the hon. Member for Redcar (Anna Turley), who is an amazing champion for activity in this sector, and we all wish her extremely well.

Listening to the speech by the hon. Member for Sheffield, Brightside and Hillsborough (Gill Furniss), I was reminded of the many debates that I had with her late husband, who, like her, was a doughty champion of the activities of the constituency. I am sure that her constituents are very proud of her and I like to think that her son will get a council seat soon, because it is clear that he has also done an amazing job in representing the communities in that area. Evidently, they are a great political family.

I welcome the comments that have been made today. Everyone here is standing up for a foundation industry, a vital industry and an industry about which we should be incredibly proud, not only for developing the technologies that underpin it but for continuing what has been a highly productive trajectory. Given that we are discussing such an important industry, I hope we might get beyond some of the party polemics and the Nye Bevan rhetoric that we have heard today. I will just point out a couple of facts and then I hope that we can park the politics of this debate.

In 1998, 68,000 people were employed in this vital industry. During the next 16 years, largely under a Labour Government, that number dropped to around 30,000. Since then, we have seen an increase in employment, despite going through some very tough economic times—[Interruption.] These are the facts, I am afraid.

I will also point out that it was a Conservative Prime Minister who called the first steel summit, who set up the steel council, who has paid for the report on the “Future Capacities and Capabilities of the UK Steel Industry” with taxpayers’ money, because we think it is a vital investment, and who has Ministers who are absolutely committed to working with this industry, domestically and internationally. I hope that we can get beyond the party politics, for the sake of the people depending on this industry and for the sake of the thousands of incredibly highly productive jobs in the industry. I think it is time to get to a different place, where we focus on the long-term potential. So can we have a little less politicking and a little more focus on the future of the industry, please?

On my visit this summer to the constituency of the hon. Member for Aberavon (Stephen Kinnock), as I went round the steel plants and talked to the workforce, who have been there for generations, I was struck by the level of skill and pride of the workforce, as well as the impact that those plants have on the constituency and the innovation that they bring. I remember talking to a shift manager in the electric arc furnace nearby, who said, “My dad would never have thought I could do this job, but he’d be really proud of me today”, as he tapped out molten steel.

However, I was also shocked to see the conditions that we still expect people to work in. This is a very tough industry, and I know that people in the steel plants are incredibly proud of what they have done. I join all Members in paying tribute to the steel workforce, who have shown amazing foresight over the last few years. We are very keen to continue to engage with the unions, as we do with the managers and the investors, to drive this sector forward.

Let me just reiterate very quickly what the Government have done, because it is clear that in such a vital strategic industry Government involvement, both in the sector itself and in the other aspects of the demand and supply chain, is very important. Procurement has come up many times today. We are working very hard to ensure that, where possible, British steel is the steel of choice in public procurement. We have new procurement guidelines; we have published the steel pipeline, which looks out over the next five years; and we are setting out how we want to use more than 3 million tonnes of steel on infrastructure projects such as High Speed 2, Hinkley and on the upgrade of the motorway network. That is a pipeline that has been widely welcomed by the sector.

[Nic Dakin]

I thank the Minister for the tone that she is adopting, but does she not agree that it is important that the Government monitor performance on procurement? That was the intention when the guidelines came in, in 2016, but since then it appears to have slipped.

[Claire Perry]

I will happily take away the hon. Gentleman’s point. Although we do not want to mandate supply, because we want the sectors to buy the best quality at the best price, we must ensure that, where we can, we pull forward and give certainty to the steel industry. As the hon. Member for Sheffield, Brightside and Hillsborough said, the work we do with other vital sectors, such as auto and construction, has a really important knock-on effect on supply for the steel sector. In the auto sector deal—I will talk about sector deals in more detail—we have set an ambition and the industry has committed to increase the share of UK content in the automotive supply chain to up to 50% by 2022—it has already gone up from 36% a few years ago to 41% now. That has to be important, given the reliance of the sector on our superb British steel industry. Also, through the construction sector deal, we see big improvements in productivity and in demand for British steel.

The point has also rightly been made about trade. We all know what global trading conditions are like. The Prime Minister has called on the G20 forum on steel excess capacity to agree concrete policy principles, and my Secretary of State was in Berlin just a few days ago pushing for agreement on them. The director of UK Steel said:

“The outcome of today’s meeting is enormously welcome, representing a significant step towards delivering concrete action”.

He also felt obliged to congratulate my Secretary of State on his personal efforts, which show that we are committed to solving the underlying challenges the industry faces. It is only a first step, and we must continue to engage, but it is an extremely important one.

On the post-Brexit trade arrangement, we are extremely focused on what that test looks like in a post-Brexit world and on how we can have a suitable trade protection system that enables us to respond based on the geographic impact of certain trading regimes in the UK. That is something on which we are working closely.

Energy prices have, of course, come up. I will say a little more about that, but I want to thank those hon. Members who have acknowledged that we have managed to head off any negative impacts of the so-called Brexit amendment. I laid the legislation before the House last week and I look forward to introducing it. We want there to be absolutely no negative impact. We have reimbursed the steel sector more than £200 million for its energy costs, and from 1 April 2018 we will introduce exemptions rather than compensation mechanisms, so that companies can have their bill reduced by up to 85% of their relevant costs rather than have to muck about submitting a claim. That is very important for cash flow.

The capacity and capabilities report, which the Government asked for and have paid for, with our taxpayers’ money, has really helped the sector, for the first time, to come together to understand what its challenges are. I chair the steel council, and a conversation we always have is about how we have never sat down as a sector and talked about our collective challenges. We have always competed; it has been a zero-sum game. But it is not a zero-sum game. If we want industries and Government to invest in research and development and think about how they might support other vital industries, collective activity is needed. The report has been warmly welcomed by, among others, Roy Rickhuss, who said:

“This will help us all better understand the opportunities and challenges facing the UK steel industries”.

The report points out the skill shortage. The average age of a steel worker is 45, and most of them are gentlemen. The sector has not invested in the skills of the future. Despite the employment losses, it is highly productive; we have asked workers to do more on a daily basis. The sector has invested, but we know we have to get the skills and the investment up.

There are challenges for the sector. The study sets out a welcome point, which is that there is a market opportunity of up to £4 billion by 2030 for our UK steel companies if they and the Government can align themselves for it. To capture that opportunity, the sector requires the kind of transformative investment that some of the companies have made in other parts of their European portfolio. On customer demand, the capability and capacities study shows that only 18% of that opportunity will be available if there is no investment, particularly investment in higher-grade and more speciality products, upgrades and additional facilities, and increases in research and investment. In fact, the industry itself acknowledges that it has not focused on customers. Many steel consumers in the UK continue to import because different product sources exist and sometimes, frankly, customer service is better. That is a problem that the Government and the sector must work on together.

Some countries such as Germany choose to up consumers’ energy bills and subsidise those of heavy industry. In this country, we have tried to hold down energy costs across the board, as we invest in the transition to cleaner energy, so we have some of the lowest consumer energy bills in Europe. However, as hon. Members have pointed out, although our gas bills are competitive for industry our electricity bills are among the highest in Europe. We have clearly set out the ambition to have the lowest electricity costs in Europe. We commissioned the review by Dieter Helm, which pulled no punches, the recommendations of which we are considering carefully. It is a welcome backdrop that renewables are getting to the point of subsidy-free generation, so the long-term investments we have made in that transition are starting to bear fruit. I am, however, very aware of the asks on energy costs and will continue to review them.

I want to turn finally to the sector deal. I reassure Members that the first draft of the industrial strategy had four sector deals in it, out of the 52 or so that had been submitted. That does not mean that they were the superior, priority or target ones. They were the deals that were closest to the line because they represented a joint industry and Government focus on driving up productivity in the industries in which we know we have to be successful to compete in the future. The steel sector deal, on which we have worked very closely with the sector, is one of the other deals we are actively engaging with and working on.

[Nic Dakin]

rose—

[Claire Perry]

I will just try to get through this point and then I will be happy to take an intervention.

I have every intention and every expectation of bringing forward an attractive sector deal. We have held many meetings, and when the deal is in a good enough place and we have commitments on both sides to drive the transformation, we will do that. The deals are not, “Give us some money”, they are, “What can we do together, Government and industry, unions, apprenticeships, education institutions and our brilliant academic institutions, to create the industry of the future, to capture those opportunities and drive them forward?”