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British Steel - Statement

– in the House of Lords at 4:22 pm on 22nd May 2019.

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Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 4:22 pm, 22nd May 2019

My Lords, with the leave of the House I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy. The Statement is as follows:

“With your permission, Mr Speaker, I would like to make a Statement about British Steel. It was announced this morning that the court has granted an application by the directors of British Steel to enter an insolvency process. Control of the company will now pass to the official receiver, an employee of the Insolvency Service, who will run a compulsory liquidation. The official receiver has made it clear that British Steel employees will continue to be paid and employed, and that the business will continue to trade and supply its customers while he considers the position of the company. In fact, employees were paid early with the May payroll being run yesterday through cash advanced by the company’s lenders.

As the House will recall, I made a Statement on 1 May setting out details of a bridging facility that the Government agreed to provide to ensure that British Steel was able to meet its obligations under the EU Emissions Trading System, which fell due on 30 April. The Government provided the facility to purchase the allowances, worth £120 million, against the security of the 2019 ETS allowances, which are currently suspended pending ratification of the withdrawal agreement. Without this facility, British Steel would have faced a financial pressure of over £600 million—the ETS liability plus a £500 million fine. This would not only have placed British Steel in an insolvent financial position, the charge attached to its operational assets would have been likely to prevent any new owner acquiring the assets in the future. This transaction demonstrated the Government’s continuing willingness to work closely with all parties in order to secure the long-term success of this important business.

Following this agreement, the Government have worked intensively with the company for many weeks to seek solutions to the broader financial challenges it has been facing. The Government and individual Ministers can act only within the law and this requires that any financial support to a steel company must be made on a commercial basis. In the case of the ETS facility, this was based on the security of future ETS allowances. In order to provide liquidity to the business in the face of its cash flow difficulties, the Government were willing to consider making a cash loan to the company and worked hard to investigate exhaustively the possibilities of doing this. However, the absence of adequate security and no reasonable prospect that any loan would have been repaid, and the shareholder being unwilling to provide a sufficient cash injection itself meant that this did not meet the required legal tests. I am placing in the Library of the House the Accounting Officer’s assessment of these proposals, drawing on professional and legal advice, which concludes:

‘It would be unlawful to provide a guarantee or loan on the terms of any of the proposals that the company or any other party has made or any others we have considered. You must note that such an offer cannot be made legally and that by making it you would be in breach of the Ministerial Code”.

The insolvency removes Greybull from the day-to-day control of British Steel. Given the Government’s willingness to help secure British Steel’s future, demonstrated in the ETS facility and the discussions that have taken place in recent weeks, the Government will work closely with the official receiver and prospective new owners to achieve the best possible outcome for the sites. The Government have provided an indemnity to the official receiver, who is now responsible for the operations. We will take every possible step to ensure that these vital operations can continue, that jobs are secured and that the sites at Scunthorpe, Skinningrove and on Teesside continue to be important centres of excellent steelworking. During the days and weeks ahead I will work with the official receiver, the special managers and with a British Steel support group of trade unions, management, suppliers, customers and the local communities to pursue remorselessly every step to secure the future of these valuable operations.

This is a worrying time for everyone associated with British Steel. Each one of its sites has a proud record of steelmaking excellence and I am determined to see that continue. Britain and the world will continue to need high-quality steel, and British Steel is among the best in the world. Today is a very big setback for these operations, but it is far from being the end and we will take every possible step to secure a successful future for these vital assets, both people and plant”.

My Lords, that concludes the Statement.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Opposition Whip (Lords) 4:27 pm, 22nd May 2019

My Lords I am grateful to the Minister for repeating the Statement on British Steel made in the other place by his right honourable friend the Secretary of State for BEIS. It rather neatly demonstrates that there is a bit of a gap between what is happening in Parliament, with our discussions on Brexit, and the real world, in which our current political difficulties are causing real and lasting damage to our economy and to our country. If I may say so, the noble Lord rather gave the game away yesterday when his response to the Urgent Question on this same issue contained no information whatever about the state of play in what were ongoing negotiations with the company at the time and merely repeated the hollow sounding platitudes even he must get tired of hearing himself say about how, “Global economic conditions continue to be challenging for the industry” and that the Government, “are working with the sector, unions and the devolved Administrations to support a sustainable, productive and modern UK steel sector”. Indeed, today’s Statement is almost a repeat of yesterday’s speech with a few added platitudes.

This is absolutely devastating news for the workers, their families and the communities who rely on British Steel directly in Scunthorpe, Skinningrove and on Teesside, and all the way through the supply chain. At least 25,000 people will have been worried sick this morning, wondering whether they will have a job this time next week and what the future holds for them. What plans do the Government have to support the 4,500 people employed directly by British Steel and the 20,000 or so employed by companies in the supply chain?

British Steel is our second-biggest steel-maker and one of only two integrated steel-making sites in the UK. It is the only UK steel plant that produces the rails we use on our tracks, providing almost all those procured by Network Rail and supplying ScotRail, TfL and Translink in Northern Ireland. It also exports a large volume of products across Europe. Surely, in any industrial strategy worth its name, British Steel would be one of the main pillars of our manufacturing capacity and the department would have detailed knowledge of its business plans, finances and operating strategy. Does the Minister agree that it seems to have been blindsided on this?

Yesterday’s UQ response was largely a rehash of an earlier Statement on how BEIS has put £120 million into the company as part of the ETS bailout. We have heard the same story again. The only question the Minister answered yesterday was the one I asked about whether the ETS bailout money would be at risk in an insolvency; he said that the money would be repaid. What due diligence did the Government carry out before agreeing that bailout? Were they really unaware that there were likely to be cash-flow problems in the company sufficient to cause it to go into administration within three weeks of this deal? Does he want to reflect on what he said yesterday?

Secondly, it is surely imperative now that the Government ensure that this business is stabilised and confidence given to customers, workers and businesses right across the supply chain. In this context, can the Minister tell us whether the Government have considered taking over the company? My understanding of the situation is that, given the strategic importance of the sector, this would almost certainly be allowed under state aid rules. It would be a good deal, given that it has been estimated that allowing British Steel to collapse could lead to about £2.8 billion in lost wages over a 10-year period and cost the Government about £1.1 billion in lost tax revenues and increased benefit payments.

Thirdly, it is reported that the owner, Greybull Capital, was asking the Government for a loan of £30 million, although there have also been reports that it wanted £75 million. The Minister refused to name a figure yesterday. Can he confirm today what the asks of British Steel were in the negotiations? Was it just the reported £30 million or more? Was a wider package of measures requested, including government action to support steel production? If so, why was that refused?

Finally, Greybull Capital acquired the asset now known as British Steel in 2016 for £1. It is reported that the plant returned to profitability within 100 days of that sale. Of course, the directors of Greybull Capital owe a duty of care to the company and its creditors in an insolvency. Can the Minister confirm whether it is likely that an investigation into possible wrongful or fraudulent trading under the Insolvency Act 1986 will be considered, with particular reference to the substantial management fees paid to directors since 2016, the accrued interest charged at 9% on £17 million of loans made by Greybull to the company, and the £42 million acquisition only last week of a company based in France?

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy)

My Lords, I too thank the Minister for repeating the Statement made in the other place. Yesterday we talked about the environment of uncertainty around Brexit, which has put pressure on this business. It certainly cannot have helped it in its struggle. I will not repeat those points today, because they have been well made.

Yesterday the Minister stood at the Dispatch Box and metaphorically tapped his nose and said, “Wait and see”. We did not have to wait long, and what we see is really pretty terrible—for the employees and sub-contractors, for Scunthorpe and the other areas in this business and, frankly, for the country. The Government can trumpet the proportion of British steel each department buys, but if this company goes down there will be a significant lack of steel for these departments to buy.

The Minister says the Government seek “the best possible outcome”. The best possible outcome for this business is the continuing making of steel in these furnaces. As I am sure the Minister acknowledges, the first job of the receiver is to do everything possible to keep this business going for future use. The priority is to keep the furnaces burning; once the furnaces go cold, the hope for those factories goes cold as well. Can the Minister confirm that this is the number one priority the Government have given the receiver? What other assistance will be available from the Government to keep those furnaces burning?

The Statement alludes to a sticking point around what future aid could be given and EU state aid rules, and reference was made to a letter from the accounting office. Can the Minister tell us what consultation has gone on with the European Union and the Commission, what response they have had in those discussions, who they talked to and when? I am slightly concerned that there is a level of scapegoating going on here.

As the noble Lord, Lord Stevenson, pointed out, there are a number of questions around Greybull Capital. I shall not repeat them, but there are suggestions that the private equity owner of Greybull was unwilling to play ball when it came to the amount of money required to show its commitment to this business. Perhaps the Minister would like to set the record straight on that.

Just up the road from where I live, there is an empty former My Local convenience store; some of my friends were stranded when Monarch went bust; and today, we have British Steel. What is the link? The link is that they all went down on Greybull’s watch. That might be unfortunate, it might be a coincidence, or it might be a pattern. Some would say that these kinds of businesses come with an attendant risk and that sometimes, because of that risk, they fail. But who is taking the risk? Is it Greybull, the private equity owner of this business, or is it the Government who are actually absorbing the risk? We heard yesterday and today about the £120 million granted as a bridging loan. We have heard that the negotiations to rescue this company failed. How much risk are the Swedish and Turkish owners of this private equity company prepared to take? For there to be reward, there should also be risk.

Yesterday, the Minister said that no stone would go unturned. Today, he talked about remorseless activity. Could he tell us which stones are being turned? What actions are open to the Government to make sure that they continue to make steel in those blast furnaces?

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My Lords, I start by agreeing with both noble Lords. I accept the words they used: the noble Lord, Lord Stevenson, said that this was devastating news and the noble Lord, Lord Fox, said that it was terrible news. It is bad news, as my right honourable friend the Secretary of State made clear only an hour or so ago when he made this Statement in another place. He was very grateful for the positive, cross-party support he had from all round the House for what the Government have done and are proposing to do.

The noble Lord, Lord Stevenson, claimed that I said nothing yesterday. I agree that I said relatively little, but at that stage it was not possible to say much. Despite what he seemed to imply, I can assure your Lordships that the department, my right honourable friend and other Ministers have been involved in this matter for some considerable time. They have been in discussions with, as he made clear, the company and its owner, Greybull, and with the unions, the community, suppliers and others. I will possibly write to the noble Lord, Lord Fox, with details of further discussions they have had with the Commission about these things.

There are, however, obviously limits to what government can and cannot do within the law. Our focus now has to be on working with the official receiver to find new partners and new owners. As the noble Lord, Lord Fox, made quite clear, our focus should also be on working with him to keep the furnaces burning, for the very simple practical reason that they lose their value rapidly if they go cold. There is nothing so worthless as a cold steel works, and therefore, as far as is possible, one thing the official receiver will have to do is try to make sure things can be kept going for as long as possible so that he has an asset that is of value to sell on.

I want to make it clear that obviously, we can act only within the law and that requires any financial support to a steel company to be on a commercial basis. I have been advised that it would be unlawful to provide a guarantee or a loan on the terms of any proposals that the Government have made so far. As the noble Lord, Lord Stevenson, made clear, the company did ask for £30 million, but it did not offer any contribution itself and without that it would not be possible for the Government to act.

The noble Lord, Lord Stevenson, also put forward the idea that we should nationalise the company, but that does not solve any of its problems, such as the need for investment and the fact that it is operating in a highly competitive global market. I have been criticised by both noble Lords for repeating that, but it is a simple statement of fact that a great deal of steel is being produced and it is a highly competitive market. All of us in this House who have been around a long time know that the UK steel industry has changed greatly over the past 40 years. We have a much better industry than we possibly had in the past but, even so, it is a competitive market and it is necessary to recognise that.

As I made clear, we will continue to work with the official receiver, the unions, local government and all the other stakeholders to provide the support that the workforce and the company need to provide continuity for the skills and expertise that we have in the plants in Scunthorpe, Skinningrove and Redcar. I hope that when my right honourable friend next has to make a Statement about British Steel, we can bring better news.

Photo of Lord Trefgarne Lord Trefgarne Chair, Secondary Legislation Scrutiny Committee, Chair, SLSC Sub-Committee A 4:42 pm, 22nd May 2019

My Lords, was there ever any prospect of British Steel being selected to provide all the steel rails necessary for the HS2 project, and would that have made any difference?

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My Lords, I do not know whether that is the case; I will make inquiries. I know that providing steel for Network Rail is a major part of its business and it is a major supplier. Whether that would be the case for those who are building HS2 is another matter, but obviously that is some years off.

Photo of Baroness Redfern Baroness Redfern Conservative

My Lords, the Scunthorpe site sits in my constituency. For those nearly 5,000 employees and 20,000 workers in the supply chain, news that the directors of British Steel will enter into an insolvency process will be devastating, particularly for the families. Does the Minister agree that British Steel’s success is key to any future UK steel strategy because it is a national asset? We should 100% support it in saving our steel industry. Those blast furnaces must continue to burn. Steel has been the backbone of the UK’s industrial landscape for 150 years and must continue to sit alongside the global tech firms.

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

Coming from Lincolnshire, my noble friend knows exactly the problems faced by those employed by British Steel in Scunthorpe. As my right honourable friend made clear, particularly in responding to a whole raft of questions from those in another place who have constituency interests, one of our first concerns is to ensure that the uncertainty can be removed for those workers. That is why we are encouraged that their pay packets have at least been dealt with as of yesterday. But as I said, we want to work with the official receiver to ensure that this can continue and that a viable, operating concern can be sold on to someone else, so that steel can continue to be produced both at Scunthorpe and at the other two sites.

Photo of Lord West of Spithead Lord West of Spithead Labour

My Lords, there is a strategic defence requirement for a capability to produce steel. Thirty-seven years ago, in the early hours of the morning my ship sank and blew up in the Falklands, having been attacked for 18 hours. In war you need to replace ships, and you cannot always rely on people supplying you with steel—or anything—because they might not agree with what you are doing. There is an absolute need to do this. It seems that we have not pulled together our defence industrial strategy in terms of the 100,000 tonnes of steel that we would get from the UK if we built solid support ships in the UK, the 25,000 tonnes of frigate steel if we built the 31e’s here and the 80,000 tonnes of steel for the new ballistic missile submarines. We have given the recipe for specialist steel, at which we are the best in the world, to the French so they can provide us with some. This is not joined up. Does the Minister agree that it is an absolute strategic defence requirement for our nation to be able to produce steel, and that we must therefore pull together a policy and provide support in whatever way necessary to ensure that we have this for the future?

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My Lords, as far as I am aware, British Steel is not producing steel in large quantities for the defence industry. Having said that, I take the point that the noble Lord made. It is obviously very important to our defence industry and, more importantly, to the defence of the realm to make sure that we can produce steel of an appropriate sort. My right honourable friend is fully aware of that, and that is why he has encouraged all departments to look to their procurement of steel and why, where possible, certain adjustments have been made to allow them to take other factors into account in procurement. The noble Lord, Lord Fox, was rather dismissive of the tables we have produced to encourage other departments to buy British steel, but they are important. I can assure the noble Lord that, wherever possible within the rules, we will certainly use British steel for defence projects, but not necessarily steel produced by this company, if it does not produce the right sort of steel.

Photo of Baroness McIntosh of Pickering Baroness McIntosh of Pickering Conservative

My Lords, the Minister mentioned Scunthorpe and also Teesside, which was the cradle of the Industrial Revolution. Have the Government worked out the implications for our much-heralded industrial strategy, given that we have taken quite a knock with a number of manufacturing jobs going, Nissan’s announcement about its production and Honda closing its production in 2021? The good news story is Hitachi in County Durham building the Azuma trains that will be required for HS3 as well as HS2. Will the Government look favourably on retraining any workers who in the long term lose their jobs with British Steel, so that they can participate in other manufacturing roles in the north?

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

I shall not comment on my noble friend’s assertion that Teesside is the cradle of the Industrial Revolution because I think that one or two other areas would also make that claim, and I do not want to have to be the judge on that. She is however right to point out that the loss of manufacturing jobs in a particular area is a very painful process, and we want to offer as much help as we can to those who are affected. She is right to take an optimistic approach in talking about developments in Durham with Hitachi, for example, where new jobs are on offer and there are therefore possibilities for retraining people from Teesside. It is important to remember that while we are looking at a risk to those jobs—at this stage it is only a risk, because good news could emerge in due course—at the same time, we have to look at the unemployment figures. Unemployment continues to decline very steadily and employment continues to rise.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

My Lords, can the Minister help me understand the situation so as to better understand the appropriate response? Is he describing a company that in a sense is unlikely to be viable in any normalised market condition or a company that is in fact both efficient, producing high-quality goods with appropriate costs, but also suddenly in trouble because its primary European customers, afraid of the consequences of a no-deal Brexit with tariffs and disruptive supply chains, have had to source their product from other companies within the 27? If that is so, it seems that the burden falls on government, and it also means that we will start to see a chain of similar problems in other companies that are dependent on exports to the European Union 27.

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

No, I am not describing a company that has terminal problems. I think that it has a future, and it is the official receiver’s job to explore that and to find something viable that he can sell on. British Steel is producing fine products but it has been having problems. The level of the pound has increased the cost of its imports and, the company believes, the uncertainty over Brexit has also caused problems. However, I do not think that that is necessarily terminal for the company. It is a good company that produces fine products, and it is for the official receiver to find the right solution.

Photo of Lord Morris of Aberavon Lord Morris of Aberavon Labour

My Lords, can the Minister give an assurance that government procurement provides a level playing field for steel produced within the United Kingdom?

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My Lords, I can expand a little on procurement. As the noble and learned Lord knows, there are rules that the Government must stick to, but we were able to relax them so as to allow, for example, government procurement to make use of British firms slightly more liberally than was the case in the past. It might be better if I write to the noble and learned Lord in greater detail on that point, but certainly we have been encouraging the government departments that use steel to use British steel wherever possible.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

My Lords, will the Minister confirm that, in the event that Ministers allow British Steel to fail, HS2 rail requirements will be met in Hayange in France as opposed to Scunthorpe?

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My Lords, one ought to make it clear that British Steel is not the only manufacturer of steel in the country; there are other steel producers. However, as the noble Lord quite rightly puts it, it is a major producer of track for railway lines and that is why Network Rail has been using it. Whether the builders of HS2 will have that opportunity will depend on whether this company survives, which we very much hope it does.

Photo of Lord Kirkhope of Harrogate Lord Kirkhope of Harrogate Conservative

My Lords, perhaps I may ask my noble friend about the comprehensive nature of our steel industry. As he rightly alluded to earlier, some of these factories are turning out a finished product rather than just the basic steel. Is he satisfied that, in these circumstances, this country will continue to have comprehensive steel production across all the different categories, which we will need if it is necessary for us to be independent?

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My noble friend is right to draw attention to the fact that this is just one company among a number producing steel and steel products. I would hope that we could produce steel in a sufficiently wide number of areas to deal with the point that my noble friend makes. However, I think he would also have to accept that it is a very varied business, as he made clear in his question. Steel producers manufacture a whole raft of products, but whether we have the right blend is a wider question.

Photo of Lord Brookman Lord Brookman Labour

My Lords, I would like to make a brief point. I do not want to be criticised as I was recently with shouts of “Order”, or “Question”, but I want the Minister to know that I am pleased on behalf of the steelworkers involved in this crisis, that they have been shown unanimous support. Nobody is arguing that the listed steelworks are not good and should not remain. The trade union leaders, who have not been mentioned much in this discussion, are first class and doing a good job, and we hope that we can win.

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

I am grateful to the noble Lord for making that point. I do not know whether he was able to hear the Secretary of State make his Statement in another place, but certainly my right honourable friend referred to individuals among the trade unions with whom he and other ministerial colleagues have had considerable dealings. He wants to continue to have those dealings and is the first to say that this is a matter where—as he said—we want to continue to talk and work with everyone involved. On this occasion, that includes the trade unions.

Photo of Lord Judd Lord Judd Labour

My Lords, the Minister has said that he would hope there are alternative facilities available for the manufacturers of steel should the worst happen. That is really not good enough. If we are aiming to be an independent nation, with a strong, strategic role in the world in our defence arrangements, steel is absolutely central to all we are planning to do. We need a strategic approach to the steel industry which is included not only in our planning for an industrial strategy but in our planning for a defence strategy. We cannot drift along like this. We need to see some muscular, convincing arguments from the Government that show they have taken all this on board and are determined to develop the necessary strategies.

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My Lords, I agree with the noble Lord up to a point. I am sure he would be the first to accept that, in the modern world that we live in, it is frequently wise to buy certain things from abroad because other people can produce them better or more cheaply. Obviously, one always has to take into account the strategic considerations that the noble Lord raises. But there is no point trying to produce absolutely everything oneself, probably at greater cost and less effectively.

Photo of Baroness Altmann Baroness Altmann Conservative

My Lords, would my noble friend the Minister care to comment on the impact of the private equity capital structure games that are often played, with deep discount bonds being bought up and the ultimate owners ending up with a profit even when a company of such strategic importance ultimately fails? Can he assure us that the Government will look into the ways in which capital structure is used, particularly because the steelworkers had been doing such a marvellous job of turning around an industry that had failed in the past and was now operating extremely well? Indeed, we have other sectors in this country which are at risk, more directly perhaps, from a no-deal Brexit, and may have similar ownership structures, which we need to look into urgently.

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My noble friend makes an interesting point. My right honourable friend would be the first to say that we want to learn any lessons possible from what has happened here with Greybull’s purchase of this company, which was then renamed British Steel, some three years ago. It is a good company and I am glad that my noble friend pays tribute to its employees. It has made improvements. As I understand it, the company was returning to profitability. My noble friend goes on to talk about wider lessons to be learned about the structure of companies such as Greybull. All I can say is that we will learn what lessons we can.