I apologise for having been unable to be here at the beginning of the debate to hear the Secretary of State and my hon. Friend the Member for Kingston upon Thames (Mr. Lamont). I am most grateful to the British Steel Corporation for supplying us all at the end of April with the document "Prospects for Steel". It has proved most useful. I believe that it is a sign that the BSC and the Government are slowly being forced by circumstances back to reality in the steel world.
I do not say that the document told me everything I wanted to know. For example, it is in some respects simplistic about the profound effect of the oil crisis on steel investment. The Japanese have been saying much more plainly that since the oil crisis the emphasis in steel investment must now be on quality rather than quantity. This was the point that some hon. Members have made. The Japanese have realised how much can be done by the increased use of continuous casting. They have raised the yield from steel ingots from 81 per cent. in 1970 to 86 per cent. in 1976, and in this manner they have obtained 7 million tonnes of increased capacity in six years simply by virtue of increasing the continuous casting installations. I should have liked to see that sort of point developed more in "Prospects for Steel".
I believe that there is an air of much greater realism within the Corporation and, I hope, on the Government Front Bench as well. However, there are a few points arising from the prospectus which still give me cause for serious concern.
I am concerned that in this document, and equally in the Government White Paper in reply to the Select Committee reports, no self-financing ratio of capital expenditure has been set. It is an important discipline for the Corporation that there should be some self-financing ratio, even if it is set at a fairly low limit in the earlier years.
Also there is no sanction on the Corporation's operating account, and no split within the cash limit between expenditure on current and fixed assets. All of us who have the interests of British Steel in the 1980s at heart must be concerned about the temptation for the Corporation to raid capital expenditure to pay wages and to meet current costs.
We saw this in the year just ended where the original forecast was a £50 million deficit on current costs. In the end the Corporation ended with a deficit of £265 million on current costs and this could be financed only by cutbacks in the investment programme.
It is clear that the borrowing limit that we are being asked to approve tonight is excessive if there is to be capital reconstruction in the years ahead. The overall costs of the Corporation in producing its steel melt must be reduced, and in the end this can be done only by more steel being produced at Port Talbot and no hot steel being produced at Shotton. That is a decision that the Corporation, backed by the Government, has ducked for too long. Until it is taken the overall cost of producing hot steel will be too great.
I very much regret that the recommendation of the Select Committee on targets being set for annual reductions in manning levels has not been followed. I appreciate the difficulty in doing this, but it is an important discipline for British Steel and the unions if they are to continue with the necessary capital expenditure. This can be achieved only hand in hand with the unions, and the Select Committee recommendation should have been accepted.
There is no prospect whatever of being able to remunerate all the borrowings that we are being asked to authorise, unless there is a capital reconstruction. The prospect of a £400 million loss in the year that has just begun is appalling. In the end, if the Corporation is to compete with imports and with the growing private sector—and even though there has been so much world excess production, the private sector is still forging ahead—the Corporation must have internal competition within itself. It must have divisions to compete against each other in the same products for business and orders. Until this is achieved, we shall still have a monolithic giant which will not be able to compete effectively either with the private sector or with imports.
In conclusion, I fear that the rake's progress may continue as before. In this case the rake is getting a little more world-weary and perhaps a little wiser. In view of the large sums that we are being asked to authorise for the Corporation, we should have the opportunity annually to review what it is doing.