Orders of the Day — British Steel Corporation (Chairman)

– in the House of Commons at 6:45 pm on 15th May 1980.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Newton.]

Photo of Mr George Thomas Mr George Thomas , Cardiff West

The debate will last for two hours and 51 minutes. Clearly it is impossible to call all right hon. and hon. Members who have indicated that they wish to speak. I say that now to avoid nervous tension later.

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East 7:08 pm, 15th May 1980

In addition to opening the debate, with the leave of the House I should like to reply to questions that arise during it.

I begin with a statement on which all will agree. There cannot be many jobs of a difficulty or importance exceeding that which we are discussing tonight. The British Steel Corporation is a huge organisation which now disposes of a great deal of modern and good plant, some of it manned and working to international standards, but much of it, alas, overmanned and uncompetitive. The corporation serves what is now a weak home market, with three of its main using industries—the shipbuilding industry, the car industry and the mechanical engineering industry—in a relatively depressed state and the world supply of steel exceeding the demand. Therefore, steel is a fiercely competitive international trading commodity in a buyer's market.

There has been heavy investment by the taxpayer of thousands of million of pounds over the last few years under Governments of both parties. As the House is aware, losses falling on the taxpayer have amounted to £1,250 million over the last four and a half years. I repeat that there is much good modern plant and I emphasise—I do not think that there is any disagreement—that the corporation contains a great deal of talent, skill and pride.

It is as a result of this background—worth a great deal to the country and to those who work for or depend upon the British Steel Corporation and the taxpayer—that the present prospects of continuing losses can be reversed. To achieve a transformation in the corporation's affairs will require an enormous effort by all concerned, and in that effort top leadership can be decisive. Over many months, since the approach of the end of tenure by Sir Charles Villiers later this year, the Government have been seeking the right person to succeed him as chairman.

A job specification was prepared which sought a combination of ability, experience, character and leadership. We considered many names, nearly all of them British. A number of very senior, and some less senior, people in industry were approached. I can tell the House that for my part I should have been happy to secure any one of a number of candidates who were approached. Each would have filled many, if not all, of the requirements of the job specification.

The fact is that most of those who were approached declined either because they already occupied highly responsible positions and felt great obligations or because they did not feel that they wished to change career to take up such an exposed and daunting task in the British Steel Corporation.

There were more or less prolonged discussions with three particularly suitable British men, but, after discussions, two decided that they could not leave their present heavy responsibilities. One of them decided that he would not take the job because he feared, for one reason or another—possibly ministerial interference—that he would not be free to carry out the policies that he thought would be necessary to transform the prospects for the corporation.

I must tell the House emphatically that money was not a critical obstacle in a single case. I repeat that I should have been happy if any one of those three—and in fact some of the other candidates who were considered—had felt able to take on the task. However, without any imputation against any of those men, I believe that—except in the matter of age—Mr. Ian MacGregor meets the job specification at least as well as, if not better than any other person considered.

Photo of Dr Jeremy Bray Dr Jeremy Bray , Motherwell and Wishaw

Before the Secretary of State leaves the question of the candidates, will he tell the House whether he approached anyone within the British Steel Corporation?

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

A number of names within the corporation were considered. I did not consider anyone within the corporation up to the point of discussion, because in my judgment, and upon the advice I received, I did not feel that any of those under consideration were, in their present state, suitable for this enormously demanding task—or as suitable as those whom I had approached.

Mr. Ian MacGregor—I want to convey this to the House—is not a man with a single, simple solution to the problems of the BSC. He is not dedicated to tackling overmanning and excessive productive capacity only. He is a man who has in mind a wide range of possibilities that will help the corporation and the country. He is an example of the type of man of whom I wish we had more in this country. He is a technologist—a metallurgist—who has become an extremely successful industrialist. He is able, experienced, determined and has a powerful and friendly character. He is willing to interrupt a career in which he is a great success, in which he has very high earnings indeed, and which he finds congenial, to take on a daunting task in an extremely exposed position.

One of the reasons why he is willing, as far as I can see, to take a dramatic drop in earnings and take on this difficult task is a desire to serve the country in which he was born and brought up.

Having identified the man, we then negotiated the terms necessary to secure him. There was a lengthy bargaining period. The terms that resulted are unorthodox. They reflect the circumstances, especially Mr. MacGregor's desire to remain a partner in Lazard Freres, of New York, in which he has invested much of his savings.

Photo of Mr Bob Cryer Mr Bob Cryer , Keighley

Will the Secretary of State confirm that, apart from the salary for the chairman of BSC, he had no legal authority to negotiate any financial arrangement with Lazard Brothers, and that such an arrangement cannot be a binding legal contract unless, and until it receives the approval of the House of Commons?

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

May I correct the hon. Member for Keighley (Mr. Cryer)? I have legal authority to negotiate. I have no legal authority to pay except from the Contingencies Fund, subject to the agreement of the House.

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

I must get on. I intend, with the leave of the House, to answer questions during the debate. May I make progress now?

The terms agreed were £675,000 down when Mr. MacGregor takes up his responsibilities. Two-thirds of that sum will be repayable, pro rata, if Mr. MacGregor does not complete his three-year term. The first payment to Lazard Freres is due on 1 July. It was a necessary part of the agreement to secure Mr. MacGregor's services that the first payment should be made to Lazard Freres on the day on which Mr. MacGregor took up his appointment as chairman of the British Steel Corporation and ceased to be a joint partner of Lazard Freres.

Here I come to the point made by the hon. Member for Keighley, and I had better deal with it precisely. There is no statutory authority for the payment to Lazard Freres, but, as is usual when non-recurrent expenditure arises, authority will be sought under the Appropriation Act by means of a Supplementary Estimate to include a special sub-head in my Department's Vote. That will come forward for consideration as part of the Summer Supplementary Estimates in the normal way.

Since this Estimate will not be approved by 1 July it is intended to use the Contingencies Fund to make the first payment to Lazard Freres. This is the usual procedure when a Government enter into a commitment of this kind.

Photo of Sir John Morris Sir John Morris Shadow Attorney General

Mr. John Morris (Aberavon): May I ask the Minister on this point—

Photo of Lieut-Colonel Dick Crawshaw Lieut-Colonel Dick Crawshaw , Liverpool Toxteth

Order. I remind the House that we are short of time, and any interventions will increase that difficulty.

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

No. I am not giving way. I shall be specifically asking leave of the House to reply to questions raised during the debate.

In addition to the first payment, which I have described, there will be a retrospective fee against performance of up to £1,150,000, which I shall go into in more detail shortly. These two payments together form the compensation, not to Mr. MacGregor, but to the Lazard Freres New York partnership for the loss of the services during three years of a very profitable and active partner now contributing to that company's revenue and profits. I repeat that these payments do not go to Mr. MacGregor direct. I shall come to the implications for Mr. MacGregor shortly.

I repeat that nearly two-thirds of the payments are conditional upon the results that Mr. MacGregor achieves. The maximum payment may seem big. It is very small in comparison with the cost to the taxpayer, the country and the industry if present losses are not stemmed.

I am not saying that no other manager in this country could have stemmed those losses, at least to some extent. I am saying that, for the various reasons that I have explained, no one that I approached was willing to take on the job. I judge, moreover, that Mr. MacGregor is at least as capable, if not more capable, of reversing the losses as anyone else. I remind the House that the losses are running at about £1 million a day. If the full compensation is earned and paid it will be a real bargain for the country and a real benefit to those who work in the nationalised steel industry.

Could anyone else have done the job for less? I have tried to explain to the House that no one we judged as suitable as Mr. MacGregor was ready, for one good reason or another, to take the job.

Mr. MacGregor himself will earn £48,500, the salary laid down by the Review Body on Top Salaries, for being chairman of BSC. He will keep some fees from other directorships. While he is chairman of British Steel, he will cease to be a full partner—that is, an active or general partner—of Lazard Freres New York and will become what is called a limited partner. As one of the class of limited partners who have been full partners, he will get a share of the profits of the partnership. The capital that he has built up during his career is to a large extent invested in the partnership, and of course, he takes the risk of bearing a share of any loss that the partnership experiences.

If, after his chairmanship of British Steel, he returns to full partnership, he will get the larger share appropriate to full partners. The details of the share that goes to limited ex-general partners and to general partners or full partners are between Lazard Freres New York and Mr. MacGregor.

Photo of Mr Phillip Whitehead Mr Phillip Whitehead , Derby North

Will the right hon. Gentleman give way?

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

I think not. I shall do my best to answer questions later.

To the extent that the compensation payments form part of the income and profit of Lazard Freres New York, Mr. MacGregor's benefit from them will derive solely from his position as a continuing partner, limited or full, in the firm.

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

No, I am sorry.

We have been assured that no direct payment is being made to Mr. MacGregor out of the money paid and payable from here to Lazard Freres New York. The normal tax rules will apply.

I assert that in my view we could not have got this man for less, and I repeat that nearly two-thirds of the maximum payment that may be payable will be conditional upon results.

I now want to describe the process by which the business and financial objectives of British Steel under Mr. MacGregor will be set. I shall go on to describe the quite separate process for assessing his performance in order to determine the amount of any performance-related final payments to Lazard Freres New York. The two processes of determining the objectives, on the one hand, and of appraising Mr. MacGregor's performance against those objectives, on the other hand, will be quite separate. It is important for the House to understand this.

Photo of Mr Leslie Spriggs Mr Leslie Spriggs , St Helens

Will the right hon. Gentleman give way?

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

I am sorry; I am not being discourteous. If it gives me leave, the House will have the opportunity to listen to my answers to questions at the end of the debate.

The objectives of different nationalised industries vary with circumstances. They normally include a financial target. The targets are set in discussion between the Government and the management of each industry. When Mr. MacGregor has been able to take stock of British Steel's present circumstances, I shall discuss appropriate further targets with him. I have not changed the terms of the £450 million external financing limit for this year. Mr. MacGregor knows the importance that the Government attach to this limit.

At the apt time, the question of a capital reconstruction will be decided by a similar process of discussion between Government and management. So will the BSC's future structure, including possible sales of plants to the private sectors or private participation in various works. But Lazard Freres will play no part whatsoever in any of these discussions about targets or structure for the BSC.

I now turn to the quite separate process of assessing the performance criteria for Mr. MacGregor. The criteria are to be agreed by the end of October this year between Mr. MacGregor and me, in consultation with Lazard Freres.

Photo of Mr Bob Cryer Mr Bob Cryer , Keighley

What a cosy arrangement!

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

They will be applied by a performance review committee—two members each, nominated by Lazard Freres and me, under a chairman acceptable to each of us. The committee will be asked to assess how far Mr. MacGregor establishes the health and strength of British Steel over three or four years from 1 March 1981.

The criteria will include factors that are quantitative and factors that are qualitative. The criteria might include: the achievement of financial targets; the achievement of a specified level of results by British Steel in the year ending 31 March 1984; the share of the United Kingdom market being achieved by British Steel; the satisfactory establishment of a strong and healthy organisation through, for example, an effective corporate structure; management strength and stability; labour relations stability; and improved productivity. I repeat that some of these criteria are quantitative and some are qualitative.

If, as I believe, Mr. MacGregor can put BSC on a healthy footing in all these respects, any payment by results will be worth every penny. Let me emphasis this: unless Mr. MacGregor is judged to have improved BSC's health and strength, as measured by each of the criteria, there need be no final payment. Only if he achieves total success will the final payment by results be at the maximum. The first instalment of the payment by results would not become due until April 1984, and any second instalment not until April 1985. So the BSC under Mr. MacGregor will need to have shown steady and lasting improvement.

Only if Mr. MacGregor ceased for any reason to be chairman before the end of the three years would a recommendation about the payment by results be made sooner, and in that case against the maximum sum reduced in proportion to his period of service. It would be open to the review committee to recommend upwards or downwards in the light of the circumstances leading to any termination of the contract because of serious disagreement between Mr. MacGregor and the Secretary of State at the time.

Mr. MacGregor must be allowed to tackle the task of leading the BSC to enduring profitability, subject to the exigencies of public finance and to the statutory duties laid upon the corporation and upon myself by the Iron and Steel Acts. I have assured him of as free a band as possible. I hope that the House, whatever its judgment of what I have thought fit to negotiate in the interests of British Steel and for the nation as a whole, will join me in wishing Mr. MacGregor great success in his daunting task.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

On a point of order, Mr. Speaker. Is it not the practice of the House that interests must be declared in such matters? I wish to draw to your attention, Mr. Deputy Speaker, an important development regarding Lazard UK, which has a partnership with Lazard Freres. Lazard London is 79½ per cent. owned by S. Pearson and Son Limited, of which Lord Cowdray is chairman. That same firm gave £15,700 to the Tory Party in 1979, and also gave £1,000 to the Secretary of State when he was in charge of the Conservative Party's Centre for Policy Studies. That money should be handed back. I ask for your ruling, Mr. Speaker.

Photo of Sir Keith Joseph Sir Keith Joseph , Leeds North East

Further to that point of order, Mr. Speaker. There is no concealment of the fact that Lazard London is a limited partner in Lazard Freres New York. It is one of a considerable number of limited partners.

Photo of Mr George Thomas Mr George Thomas , Cardiff West

I have listened to the point of order. I do not think that it is a matter for the Chair at present.