Steel Industry

– in Westminster Hall at 1:00 pm on 24th March 2009.

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Photo of Ian Cawsey Ian Cawsey Labour, Brigg and Goole 1:00 pm, 24th March 2009

May I say what a pleasure it is to serve under your chairmanship, Mr. Williams? I am grateful to have the opportunity to debate Government support for the steel industry. It is a timely debate, and I am pleased that my colleagues, who share my interests in the steel industry, are in the Chamber with me. I am sure that we will all be interested to hear what my hon. Friend the Minister has to say when he responds to the debate.

I start from the simple premise that manufacturing is important to the UK economy. Steel is a fundamental part of manufacturing and, as such, it must be retained in this country. As an industry, steel has been badly hit by the global economic downturn, yet it underpins our manufacturing base and is critical to construction, infrastructure and the automotive industries. Simply put, UK steel is vital to the recovery of manufacturing in the UK, and we must do all that we can to protect it.

The last few months have been traumatic for everyone in the industry. Corus reports that business is down by an average of 40 per cent. Steel prices have fallen, and 40 per cent. of production capacity is now idle. Yesterday's figures showed that output from the Scunthorpe plant, where my constituents work, is at a 50-year low. Workers have had their number of shifts reduced with a corresponding cut in income. Across the country, 2,500 steel jobs have been lost. One could look at any steel company in any country and see that it is experiencing similar problems. In seeking this debate, my purpose was to open a discussion on how we, in the UK, can ensure that steel is helped through this period and that we retain capacity for the future. It is important that as the world economy picks up—as sure as eggs is eggs that day will come—the UK is in a position to benefit.

This morning, I was interviewed by my local radio station, Radio Humberside. It was put to me that the Government could not be expected to bail out everyone at the taxpayer's expense. However, I am not talking about a return to the days of endless subsidy. This is about sensible support for a key industry through a unique and challenging period to ensure that it is still there when business around the world begins to recover. As further food for thought, let me say that other countries in the EU are allowing their steel manufacturers to access state help for those on short-time working, including training assistance. Clearly, that puts the UK steel industry at a competitive disadvantage if there is nothing similar in our country. Of course, there is a cost to that, but there is a cost to unemployment, too, and to short-time working. The taxpayer ends up paying for both, either through benefits for people who are on the dole, such as those claiming jobseeker's allowance, or by an increasing reliance on income-related tax credits as short-time working reduces basic pay.

In an industry that is essential to the country and that will come round as the world economy picks up, I would argue that it is better to use taxpayers' resource to keep people in work and to retain our steel capacity than it is to pay for people to be unemployed and to lose the capacity to other countries which are taking steps to protect their steel production.

Photo of Elliot Morley Elliot Morley Labour, Scunthorpe

My hon. Friend makes an excellent argument and some very important points. People are being hard hit by shift reductions and the loss of their incomes. Does he agree that it is an investment to use support for training, in the same way that it is when companies try to maintain their work force and their skills? We can invest in skills and skill training while, at the same time, giving both the workers and the industry some support in a difficult time.

Photo of Ian Cawsey Ian Cawsey Labour, Brigg and Goole

Although I do not want to start a long history lesson on the trials and tribulations of steel production in the UK over the years, I would say that in the days of the old British Steel, in the recession of the 1980s, one of the big mistakes was the complete lack of training. The industry was instantly culled as a way of surviving in business at that time. Even to this day, we see the holes and skills shortages.

Photo of Hywel Francis Hywel Francis Chair, Welsh Affairs Committee, Chair, Welsh Affairs Committee

I congratulate my hon. Friend on securing this Adjournment debate. Will he commend the excellent initiatives by the Welsh Assembly Government, supported by Corus and the trade unions in Wales, to retain skills through the two important schemes ProAct and ReAct? Such schemes would commend themselves across the United Kingdom.

Photo of Ian Cawsey Ian Cawsey Labour, Brigg and Goole

I praise all the work that my hon. Friend has done on the steel industry since he has been in the House. He is part of the all-party steel group and, along with myself, a member of the Community group of Members of Parliament. I will refer to what is happening in Wales a little later in my speech. At this stage, I will say that I entirely endorse my hon. Friend's comments, and that such initiatives are something that we need to consider.

I am indebted to the Community union, which has met MPs and peers with an interest in the steel industry and put a lot of time and effort into considering how such a support package should be constructed. I am also grateful to the management of Corus. On behalf of all of us who have steel plants in our constituencies, I should like to say that both locally, through the local management, and nationally, through the briefings that we have received, we have had excellent support from Corus, which has been very candid and frank with us. As Members of Parliament who represent steel interests, we are all extremely pleased with the way in which it has kept us in the loop.

Photo of Ashok Kumar Ashok Kumar Labour, Middlesbrough South and East Cleveland

I congratulate my hon. Friend on securing this debate. We should have had this debate not just once but several times because it is such an important issue. Does he agree that one way in which the Government can help and support the steel industry is to make Corus aware of the public infrastructure projects, worth some £13 billion, that they have recently supported, so that Corus can take advantage of such projects? After all, steel is the prime component of civil engineering construction.

Photo of Ian Cawsey Ian Cawsey Labour, Brigg and Goole

I agree with my hon. Friend. Although I predominantly want to talk about the implication of short-time working and Government support for that, it would be remiss of me not to say how helpful the Government are being in bringing forward construction and infrastructure projects. Hopefully, we will see more of that. Even in my own area, which is covered by North Lincolnshire council—I am pleased that the leader of the council, Mark Kirk, is here for this debate—and the East Riding of Yorkshire council, it is not just the Government who are introducing schemes, but the councils as well. North Lincolnshire is rebuilding secondary schools and constructing a big new entertainment centre and sports academy. East Riding council is building 300 council houses, which is a good construction project providing much-needed social housing. Such things are needed if we are to support the industry through this difficult phase.

As for what further support we could give to short-term working and keeping people employed, there is a common agreement that we should be considering upskilling and retraining the work force. That would help in the challenges ahead and make productive use of the fact that there are fewer shifts available. As well as improving the skills base for the steel companies, it would also mean that if there are future job losses, we will be helping to reskill workers while they are in employment rather than waiting until they are out of work. In that way they will be able to pick up the new economies and new businesses that will come.

Photo of Shona McIsaac Shona McIsaac Labour, Cleethorpes

Is it not the case that assistance would help not only the people employed directly in the industry but the many thousands of small engineering firms and contractors that rely on a vibrant steel industry?

Photo of Ian Cawsey Ian Cawsey Labour, Brigg and Goole

My hon. Friend makes an important point. It is often forgotten in this argument that the big changes involved in restructuring the steelworks 25 years ago moved a lot of people out of direct employment with what was then British Steel into contracting. Although they might not be on the books and in the figures, they are still a key part of local employment and rely heavily for work on a successful steel industry and supply chains.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

I thank my hon. Friend for anticipating my request for an intervention. He will acknowledge that Government support for short-time working would have to be selective and based on a strategic approach that recognised the importance of a skilled work force to a particular industry. In my view, steel qualifies. Would it not be the case, though, that any scheme would have to target carefully, even within the steel industry, in order to ensure that the industry is ultra-skilled and absolutely ready to exploit any upturn that comes along, particularly in relation to the new green technologies and the new generation of nuclear power plants that we are hoping to build in the next few years?

Photo of Ian Cawsey Ian Cawsey Labour, Brigg and Goole

I agree. Clearly, new technologies are potentially exciting for the steel industry. As one drives out of Scunthorpe one can see, on the border between my constituency and that of my right hon. Friend Mr. Morley, wind turbines sprouting like daffodils in spring. Every week when we go back, there is another one. They are enormous structures, and we want British steel to be part of the manufacturing base for them and for other forms of renewable energy. The challenges are there for us.

In terms of what a support package could be, many other countries are already putting such ideas into practice. My hon. Friend Dr. Francis mentioned the Welsh Assembly's ProAct scheme a few minutes ago. As I understand it, the scheme was originally intended for the automotive industry and provided both £2,000 worth of training and £2,000 in wage subsidy to each eligible individual. Next month, the scheme will apply to other industries in Wales, including steel.

Last month, the Prime Minister said of the scheme:

"Through the Assembly, Wales has developed a new programme called ProAct to help people to stay in jobs rather than be made unemployed, and a great deal of work is being done by us to look at that scheme and at how it could apply to other parts of the United Kingdom."—[Hansard, 4 February 2009; Vol. 123, c. 487.]

Perhaps the Minister can update us on the progress of that work when he replies to the debate.

Corus has made use of a Dutch scheme for its Netherlands plant. Under that scheme, the work force has access to state aid for employees and companies in cases of national crisis, and the Dutch Government have decided to relax the criteria to cover the current global events. The scheme is now being put into place. Germany has a similar scheme to support income for those in a period of short-time working, as does Austria. In France, Mittal Steel, car manufacturers Renault and PSA, and tyre manufacturer Michelin have called on the French short-time compensation programme. President Sarkozy has proposed to extend the scheme to give significantly more assistance to keep people in work until the worldwide situation improves.

There are plenty of schemes to consider. Increasingly, Governments are coming to the conclusion that in these unprecedented times, it is a better use of taxpayers' money to ride out the downturn, keep capacity in core industries and keep people in work rather than on benefits. My hon. Friend the Minister may have seen the joint proposal from the TUC and the Federation of Small Businesses for constructing a short-term working subsidy. If not, I have a copy that I can pass to him. In their submission, they say of their scheme:

"Such support would enable employers to avoid immediate redundancies and retain essential staff and skills, making business success more likely in both the short and longer terms. It would also reduce the personal and social costs incurred by long-term unemployment...and increase economic demand by limiting the income reductions faced by workers on short-term hours or temporary lay-offs. If linked to training, it would enable longer-term workforce investment."

I cannot disagree with any of that. Surely all those outcomes would be desirable for the Government to achieve.

There is, of course, a cost to the scheme—it is costed at £1.2 billion—but it would keep 600,000 people in work. I have never subscribed to the view that unemployment is a price well worth paying. One of the things that separates the governing party from Her Majesty's official Opposition is our view on that. If we can spend £1.2 billion to protect 600,000 jobs, that would be a price well worth paying. It strikes me that although we all face the same problems around the world, how we respond is crucial to how soon and how extensively our recovery will be. Those who use this period imaginatively to keep people in work, to retrain and to protect incomes and economic activity will win the battle and come out of the downturn with their core industries in place. We in the UK must show that we have the ideas and imagination to do so for our key industries, such as steel. Our workers and our country deserve no less.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury 1:16 pm, 24th March 2009

I congratulate my hon. Friend Mr. Cawsey on securing this debate. I am deeply conscious of the importance of the steel industry not only to his constituency but to those of other colleagues who have come here to express their concerns about the difficulties faced by the sector as a result of the current economic situation.

The Corus plant at Scunthorpe employs many people in my hon. Friend's constituency. The company's plans to restructure its businesses, announced on 26 January, will clearly have worried the employees concerned, their families, the communities in which they live and the region as a whole. I fully appreciate the potential implications for the economy in Lincolnshire. The decision was, of course, a commercial one for the company. I understand that Corus has been forced to make such difficult decisions in order to remain competitive and safeguard the future of its operations in the United Kingdom.

My hon. Friend will know very well that the steel industry is notoriously cyclical. Major slumps in prices and output occurred regularly throughout the 20th century. However, the current recession is considered by many industry insiders to be more extreme than any in living memory. In the first half of 2008, the global steel industry experienced unprecedented price increases due to a combination of global factors, including excessive input price inflation. By July, prices were 70 per cent. higher than at the start of the year. In September, high prices combined with the economic slow-down signalled a sudden depression in demand. During the latter half of 2008, the industry globally failed to anticipate the sudden drop in demand and did not lower output rates quickly enough. As a result, significant stocks have built up.

By January this year, prices were back to their January 2008 levels, but demand has settled at 30 per cent. lower than capacity. Stock levels are still extremely high, and the situation is depressing prices. We are going through a process of de-stocking that will provide some support for prices and should help output to return to a more reasonable level of about 70 per cent. of capacity by the end of 2009. None the less, the steel industry has had to take some tough decisions. Some analysts predict that it could take up to four years before output returns to full capacity. Steel companies around the world have made huge cuts in output in an attempt to weather the storm. Sadly, the UK sector has lost approximately 2,800 jobs in an attempt to balance supply with demand and reduce costs. In addition, short-time working and pay freezes have been introduced across the industry.

As my hon. Friends will be aware, the UK's largest steel producer, Corus, announced in November last year that it had begun to make significant production cuts, which will continue to have an effect. On 26 January, it announced the loss of 3,500 jobs—2,500 in the UK and 1,000 in Europe. However, Corus still employs some 41,000 people group-wide, mostly in Europe, of which 24,000 are employed in the UK.

Help for people affected by those job cuts has been put in place. Where significant job losses have occurred, a local taskforce has been established to co-ordinate the support services and help people find new jobs. That taskforce is led by Jobcentre Plus, and includes the Learning and Skills Council, Business Link, the regional development agency, local authorities and trade union representatives. The package includes careers advice and information, skills training, CV and interview preparation, advice from Business Link for those considering setting up in business and advice on benefits. Help from Jobcentre Plus and the rapid response team will also be available to those who face redundancy in the Corus supply chain in the future.

My hon. Friend the Member for Brigg and Goole focused a large part of his speech on wage subsidies. As he will be aware, the Government's long-standing position has been that each country should make policies to suit its own economic framework. Although some countries have introduced wage subsidies in order to retain jobs, we have promoted training for firms—something that my hon. Friend indicated as being the right approach.

The UK has permanent structural advantages in the labour market compared with many other countries. As well as labour market flexibility, the UK system also delivers on-costs—employers' social security contributions that are not only temporarily lower in the way that wage subsidies are, but which are permanently lower than in Germany, France and the Netherlands. In this country, the gap between total labour costs and take-home pay is much less than in some other countries because social security contributions from employees and employers, and direct taxes, are lower.

The UK could not introduce wage subsidies in the same form as in Germany and the Netherlands, for example. First, the Dutch and German systems can, through the social security system, make payments to the company. By contrast, benefits in the UK are paid to the individual, who is required to look for work while in receipt of those benefits. It is a fundamentally different system. Secondly, benefit systems in those other countries are earnings-related and typically provide 60 to 70 per cent. of earnings. In the UK, unemployment benefit is very different in its level and in the way it operates.

In surveys on labour market policies, the OECD concluded that wage subsidy schemes are extremely costly—that is why my hon. Friend mentioned the importance of training. One of the reasons why such schemes are found to be costly is that the dead-weight is high; many eligible firms would have retained workers without the subsidy, and the reduction in profits and wages is now being paid for by the Government. The subsidy acts to create distortions and perverse incentives.

We believe that the future success of British industry will be based on a highly skilled work force. Where production is being reduced, we help businesses to train their work forces to ensure that they emerge from the downturn in the best possible shape to compete in the future. The crisis in the economy is, above all, a credit crisis, and we are implementing packages designed to address that problem directly by offering specific solutions. We are providing real help for the economy and business in a way that meets the UK's circumstances.

We will continue to look at ways of extending help. I know that Yorkshire Forward is working on training subsidies with Jobcentre Plus, and we are looking at what more the Government can do. My hon. Friend mentioned the Welsh ProAct initiative. That programme provides training for employees who have been put on short-time working, and offers an alternative to redundancy through retraining on days that are not being worked. It also includes support to ensure that apprentices complete their training.

Colleagues at the Welsh Department for Children, Education, Lifelong Learning and Skills—DCELLS—have been in discussions with a number of Corus companies. Those include Corus Strip Products, Corus Distribution & Building Systems and Corus Colors, which are preparing business case applications for ProAct support. They have also been briefed on the support available to employees through the Redundancy Action Scheme, ReAct, mentioned by my hon. Friend Dr. Francis.

Photo of Ian Cawsey Ian Cawsey Labour, Brigg and Goole

As I mentioned, during Prime Minister's Question Time, the Prime Minister has indicated that he was looking for ways to push a scheme such as ProAct out across the country. I accept that the Minister might not be in a position to answer that point today, but perhaps he could write to hon. Members to let us know what progress is being made.

Although I agree with the general point about subsidy and the dangers of dead-weight, does the Minister not accept that in the TUC and Federation of Small Businesses proposal, dead-weight is specifically addressed? That can be avoided through careful control, to which my hon. Friend Ms Smith alluded. We can get the benefits without the disadvantages. It is about subsidy and links to training, which we need while people are in work rather than on jobseeker's allowance.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

I understand my hon. Friend's point. The Government have talked to Welsh colleagues about the ProAct scheme. We are familiar with how it operates and we are aware of the request that was made in the submission to which he referred. He mentioned the comment made by the Prime Minister about the ProAct scheme; that issue is currently being discussed in other Government Departments. Our position has always been that a general wage subsidy scheme would not be appropriate for the UK's economic circumstances. However, we are keen to look at how we could provide further support, principally through selective training assistance. My hon. Friend will be aware of a number of things that we have already done, such as introducing greater flexibilities in the Train to Gain system.

By the end of August 2008, Train to Gain had helped more than 100,000 employers and 570,000 employees in England to get training, with over 290,000 learners achieving a qualification. We have supported more than 1,000 steel company sites this academic year, ranging from producers of basic metal to manufacturers of fabricated metal products. I appreciate the point that my hon. Friend made about the strategic importance of steel and the importance of the supply chain.

Photo of Ashok Kumar Ashok Kumar Labour, Middlesbrough South and East Cleveland

I recognise the difficulties that the Minister highlights. Has he sat down with the management of Corus and said, "Given all the problems and difficulties that you have, how else can we help?" Has he had any discussions with Corus at board level?

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

There have been a number of meetings between officials in my Department—and in other Departments—and Corus staff. Those have been about our responsibility in terms of the United Kingdom, but as I said, there have also been meetings between Welsh officials and some of the Corus Welsh plants. Some Corus subsidiaries in Wales have been preparing business cases for future support and the ProAct scheme. We have been talking to them through the Department for Innovation, Universities and Skills about the flexibilities available in the Train to Gain programme.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

I understand that the discussions have included the trade unions. It is important for the UK to ensure the continued success of the steel sector as it goes through difficult economic times. We seek to provide what support we can through training packages, and we continue to be in dialogue with the steel industry and the supply chain about that.

I want to point out other measures that the Government have introduced, such as the enterprise finance guarantee scheme and support for companies in the supply chain that need help with cash flow during these difficult economic times. We will continue to explore with Corus and other employers in the steel industry whether we can offer more practical support. I recognise that these are serious issues for my hon. Friend's constituency and for those of all hon. Members who have intervened during this short debate. We will continue to discuss those important matters and to provide what sensible support we can at this time.