Sector Deal for Steel

Claire Perry Excerpts

Tuesday 19th December 2017 Westminster Hall

[Stephen Kinnock]

I absolutely agree with the hon. Gentleman. As I will come on to explain, the sector proposal is the litmus test for the Government. We have had years and years of warm words, but this really is the moment to see whether the Government are serious about providing the support they say they want to provide.

Steel enables transport, construction, manufacturing, energy and consumer goods—you name it, Sir Henry, and if steel is not in it, it was almost certainly used to make, process or transport it. Steel is truly a foundation industry, and demand is growing. The report published last week, “Future Capacities and Capabilities of the UK Steel Industry”, showed that, by 2030, domestic demand for finished steel products will have grown by almost 2 million tonnes. That leaves almost 7 million tonnes of domestic demand to be met by the UK steel industry, which equates to a £3.8 billion opportunity per year.

That value is even greater if we consider all that steel goes into. Almost half the content of all cars built in the UK is British steel. In researching the “Steel 2020” report by the all-party parliamentary group on steel and metal related industries last year—I have a copy with me; I am sure the Minister has already read it, but I would be happy to hand it over—we heard from leading figures in the car industry that the presence of a successful domestic steel industry is a key determinant of where steel is sourced.

Steel is vital to the future of UK car manufacturing and innovation. Take the much-vaunted electric and self-driving cars, which were championed by the Chancellor in last month’s Budget. Along with the normal steel content of any car, what do hon. Members think their batteries are cased in? Steel. If we are to invest billions in that new technology, why on earth would we not invest in the capacity to monetise those innovations? If we do not have the capacity to manufacture, or the capacity to produce the steel for the batteries and the machines that manufacture them, we will lose out. The steel will be Chinese. The manufacturing and machinery will be German, and we will have spent billions on an idea that sees profit not in Port Talbot, Sheffield or Redcar, but in IJmuiden, Tangshan or Duisburg.

Despite investment in R and D falling by 90% over the past 25 years, the UK steel industry is still at the cutting edge. More than two thirds of steel produced in the UK today did not even exist a decade ago, so we should not let anybody tell us that steel is a sunset industry. It is an industry that is building a Britain for the future, which is why a go-ahead for the sector deal is vital. It is also important because steel is the ultimate economic and social multiplier. For every £1 of public investment in steel R and D, the return averages between £6 and £16. That means the £60 million transformation fund in the sector deal could add up to £960 million for the UK economy. I do not know about you, Sir Henry, but investing £60 million for almost a £1 billion return feels like a pretty good investment to me.

On average, steel jobs pay 40% higher than the average in the steel heartlands of Wales and Yorkshire and the Humber. Every steel job supports at least three further jobs in the local community and the national economy. Losing the steel industry would devastate towns such as Port Talbot, but the knock-on effects would be equally catastrophic. If the Port Talbot steelworks were to close, it would cost 40,000 jobs across Wales and the UK, costing the Government a total of £4.6 billion in benefits and lost tax revenue and reducing household spending in the economy by £3 billion over 10 years.

If we were to reshape the energy market, as the steel sector deal calls for, the most it would cost would be the equivalent of 57p per household per year. That is 57p a year against almost £8 billion in lost spending, tax and benefit payments if things were to go wrong. Once again, Sir Henry, that looks like a pretty good return on investment to me. There is a golden opportunity, with huge potential for growth. We should all applaud the Government for crossing the Rubicon and accepting the need for an industrial strategy, but the fact of the matter is that, if the Government fail to support the sector deal, that strategy will not be worth the paper it is written on.

Speed is of the essence. Steel companies only have so much capital to invest. That capital is spread across their global businesses, and if they cannot invest it here and now, it will go elsewhere. That is the nature of the beast. We have already seen Liberty spend almost £1 billion in Australia, and there are reports that British Steel—formerly Tata Long Products—is looking at an Italian plant. The clock is ticking and time is running out.

With the uncertainties of Brexit, the Government should be biting the hand off of anyone willing to invest at this time. Instead, steel companies have been fobbed off with all sorts of excuses. They submitted the sector deal on 7 September, but were only granted a meeting with the Minister at the very end of November—hardly the behaviour of a Government serious about supporting this foundational domestic industry. The fact is that the Government’s failure to engage on the steel asks set the tone. The sad reality is that trust between the Government and the steel industry has been shot to pieces. Warm words are no good to anyone if they are matched only by frozen actions.

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

I must correct the hon. Gentleman on a factual point: one of my very first acts as Minister was to visit the steelworks in his constituency and close by. I met the council formally to discuss the shape of the sector deal and subsequently three times after the presentation of the sector deal, and I have met and spoken to the companies on numerous occasions. He really must correct the record, because it is simply not true to say I only engaged with the sector after the sector deal was submitted.

[Stephen Kinnock]

I thank the Minister for her intervention. Conversations, visits and meetings are excellent, but the fact remains that the sector deal was submitted on 7 September, and a meeting was not granted with the steel industry until the very end of November. As the clock is ticking, the decisions about investment next year are drying up. It would be great to see rhetoric matched with reality.

An industrial strategy is not built on good will. A business cannot be built on Whitehall bluster, and communities cannot be sustained on platitudes. We all understand that an industrial strategy cannot do everything for everyone, but if the Government are serious about rebalancing our dangerously skewed economy, they must surely start by investing in the steel industry. With the steel sector deal, all that is being asked for is a small amount of help to unlock tremendous potential, create thousands of jobs and add hundreds of millions of value to the economy. Instead, the Government seem to be more interested in investing in robotics, medicine, life sciences and driverless vehicles. I am sure that those emerging industries are vital, but they are all concentrated in the south-east of England. Is that really going to support the broad-based manufacturing renaissance that our country so desperately needs?

Steel workers the length and breadth of Britain have shown that they will make every sacrifice, and the industry has dug deep too. It is the Government who have been found sorely wanting. Steel communities are a hardy bunch, forged in the white heat of our industry and from parts of the country that are well used to being forgotten, neglected and ignored by successive Tory Governments. They know how to take bad news on the chin, and they certainly prefer to be treated like adults, with honesty and clarity as opposed to the obfuscation that has become the hallmark of this Government.

I urge the Minister to stop taking us for a ride. All the indications are that the Government really could not care less about the future of the British steel industry. If that is the case, they should just say so. Please stop stringing us along, and stop promising to do something about energy prices, dumping, procurement and business rates while in reality having no intention whatsoever to act. Please level with us today on the sector deal. Just tell us here and now whether or not the Government are minded to support it. If they are not, it is clearly better to know that now, so that no more of our time and energy is wasted. We know that the previous Prime Minister and Business Secretary only got involved when they realised they had a brewing PR disaster on their hands. We hoped that this Prime Minister and this Business Secretary would be different, but the sad reality is that the Government lost interest once the media circus moved on, so we are back to square one.

The toxic combination of complacency, indifference and incompetence is back with a vengeance. Eleven months ago, the steel APPG produced “Steel 2020”, which provides a road map for the industry’s future. Eleven months on, we are still waiting for the Secretary of State to give us a date for a meeting to discuss it. Over recent weeks, we have seen unscrupulous financial advisers swooping in like vultures to exploit steelworkers while the Government stand by and do nothing. Now we see a comprehensive, exciting offer from the steel industry, backed by the trade unions, sitting on the shelf and ignored for three months. I would say that that is shameful, but I wonder whether the Government are capable of feeling that emotion.

I implore the Minister again to level with us. If she will not help, she should just say so, and the Government should stop wasting our time and giving us false hope. Let us get on and fix what we can ourselves, because right now, the Government are only holding us back. I desperately hope that the Minister will stand up and prove all my suspicions wrong. In fact, I am praying for it, because it is my constituents’ lives and livelihoods that are at stake. I will finish by saying to the Government that they have a choice: they can either be part of the solution, or they can continue being part of the problem. Now is the time to choose, and this sector deal is the litmus test.

--- 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?”

[Kirstene Hair (Angus) (Con)]

What the Minister is detailing about the sector deals is incredibly positive. Can she confirm how the UK Government will work with the Scottish Government on the deals?

[Claire Perry]

We are working very closely with the devolved Administrations. In fact, the Administrations of Scotland and Wales have signed up to the industrial strategy and we are working cross-border with them because the industry is a vital national one.

To conclude, it is time to reject some of the tired political arguments we have had on the issue. There are hon. Members on both sides of the House who represent steel-producing areas and many more who represent areas where the steel supply chain is absolutely vital. We will continue to work on the sector deal. We understand the ask of the industry and the strategic challenges it faces. If I could have one Christmas wish, it would be for an end to the outdated party politics around this vital foundation industry for the UK, that we build a cross-party partnership and that we work with the industry, which is being transformed, to protect and grow it, not for the next 12 months or two years but for the generations to come.