Examination of Witnesses (Questions 1
MONDAY 6 NOVEMBER 2000
1. Good afternoon, gentlemen. Perhaps, Mr Leahy,
you could introduce all of your colleagues and we will get started?
(Mr Leahy) My name is Michael Leahy. I am General
Secretary of the ISTC, which is the iron and steel unit. On my
left is Michael Walsh, who is Head of Research for ISTC. On my
immediate right is Bob Shannon, who is National Officer for the
AEEU with principal responsibilities for steel and metals. On
his immediate right is Paul Collier who is national officer for
the AEEU with specific responsibilities for SIMA, the Steel Industry
Management Association, and Paul is based in Wales. Unfortunately,
Mr Gordon Hopwood, who is the national officer, sends his apologies
to the Committee and Paul is standing in.
2. Can we offer from the Committee apologies
for the small number of colleagues I have with me today. Some
are held up on motorways delayed by flooding, there is at least
one case of illness and there are others who, for other reasons
relating to the weather, have been unable to attend. I can assure
you that the agenda which we have set ourselves will be covered
in the questions that we would like to ask you that I am sure
we will be able to address. Perhaps we could start off, Mr Leahy.
A lot of the concerns that we have been getting are in the context
of the euro. In your estimation what is the impact of the strength
of the pound against the euro on the steel industry at the present
(Mr Leahy) Chairman, it is very significant. I think
it is agreed that for every ten pfennigs that the deutschemark
rises against the pound then that means £100 million off
the bottom line. The fact is that we are producing more steel
with less people than we did in 1996-97 when Corus, the principal
producer in the steel industry, made one billion pounds. It is
now making losses and in large part it is down to the exchange
rates. I do not know whether my colleagues would like to supplement
(Mr Shannon) Chairman, there is no question that it
is having a considerable impact on the company but it is not alone
in that. Corus is not the only company that deals in exports in
this way. Through both the ISTC and AEEU's evidence we will supplement
that as the meeting goes on, but where I think we part company
is how you deal with what is a very real effect on a major exporting
3. Mr Leahy, your organisation states in your
submission that you support British accession to the single currency
at a sustainable rate. I think we are all agreed that there is
quite a sizeable gap at the moment. Do you think that immediate
accession would solve these problems given the disparities of
the fall-out which might occur if we had to try to adjust quickly
to the prevailing euro exchange rate?
(Mr Leahy) I think the fact of the matter is that
it is having a significant effect on the trading position of steel
producers and the rest of manufacturing. As an organisation, and
I am speaking here for ISTC not the AEEU, we believe that we should
go in as soon as practicable. Those five economic tests that the
Government has placed on record should be met but it should be
at a level that is sustainable. We have a view about that, we
believe it is around 2.70/2.80 deutschemarks to the pound. Our
major complaint to the Government is that there should be a clear
indication from the Government that we should enter the euro and
talk the matter up rather than talking the matter down because
there are a lot of misconceptions, particularly among the public
at large, about this particularly complex issue.
4. Is that a view that is shared by you, Mr
(Mr Shannon) I would emphasise that as an organisation
the AEEU supports the five criteria that are laid out. We do believe
that a firmer statement as to when those criteria will be met
will assist industries in planning. The complaint that we get
is that the vacuum that that leaves makes it very, very difficult
to actually plan your investment. If you know there is a timetable
attached to that then you can actually make your decisions based
around that particular timetable. At the moment, because there
is a great deal of doubt as to that particular timetable, it is
a fair point for companies like Corus to come back and say that
does affect their planning in the short and medium term.
(Mr Leahy) The problem is that our complaint against
Corus is they complain repeatedly to us that it is an enormous
problem but they do not make any public pronouncements on that.
I think their policy is no different from that of the ISTC or
the AEEU but they make no public pronouncements on the fact that
they too want entry into the euro at a sustainable level but believe
that it is a party political matter and, therefore, they do not
make any public pronouncements on these matters.
5. Maybe we could move things on a wee bit in
the sense that the burden of your evidence, both of your organisations,
rests in large measure on your concerns about job losses. Indeed,
it has to be said that we would not be asking you questions today
about the future of the British steel industry were there not
a haemorrhaging of the labour. Is this all attributable to the
exchange rate and the fact that we are not in the eurozone? Is
there any part of it that you would lay at the door of the employers?
Do you think these could have been avoided?
(Mr Leahy) I think in large part, Chairman, it is
about the exchange rate but the fact is also one has to take into
account that steel is a cyclical business, as the document states,
and prices go up and down. There has been a softening of prices
and we are trading now, I think the statistics show, on average
at £310 per tonne instead of £400 even 12 months ago.
There is a combination of things. Where we have a complaint with
the employer here is that we all agree that this is a short-term
problem but they are taking long-term measures which will have
a deleterious effect on the industry. We believe that the steel
industry is significant in its strategic importance for manufacturing,
the economy at large and the defence of the realm. This is not
being taken into account when these decisions are being made.
It is of fundamental importance that Government has an influence
over the future of the steel industry because it does have that
strategic importance to the economy.
6. Do you think the redundancies could have
been avoided in any way?
(Mr Leahy) I think they could not have been avoided
in that sense but the depth of those redundancies and the announcement
of those redundancies, particularly in terms of the consultation
that we had hours before these were announced and they were trotted
out in different periods amounting to 4,400, the way that they
were announced, the possibility of putting alternatives particularly
to Corus, were not there. I think it is fundamentally important
that we, the workforce, are properly consulted about these issues
and have an opportunity to put alternatives.
(Mr Shannon) Could I add to that. Part of the redundancies
certainly could have been avoided if you had a different investment
strategy. I think that is the key to large multinationals and
it is the short, medium and long-term investment strategies where
we continually run into difficulties with Corus. It is very hard
to draw that out of them. If they are repositioning the company
in terms of their global commitments then it is very easy to see
the knock-on effect in the UK economy. In our submissions we have
particularly pointed out the job losses in Workington but with
a different investment strategy they could have been avoided.
Our problem still, and it has not changed, is that the company
is enormously reluctant to enter into those discussions before
they make strategic decisions that affect the rail industry in
the UK. In fact, they have moved our only strategic part of the
rail industry from the UK to Europe, no discussions were had with
the unions and, as I understand, very little discussions were
had with our Government. We continually press them that if they
had those types of discussions then at least the workforce could
see that if at the end of the day redundancies are unavoidable
that everyone has a transparent policy that they could accept.
7. Maybe you could set the investment issue
aside just for a moment. There seem to be a couple of points emerging
from what you have said. One is the specific criticism of Corus
and the way in which they handle the announcement of redundancies
and their consultative procedures that they adhere to. The impression
we get is that you are told and in 48 hours men and women are
going down the road and that is it.
(Mr Leahy) Correct.
8. Is that correct?
(Mr Shannon) Yes.
9. Is this the way that old British Steel in
private ownershipI do not think we need to go down the
road too farbehaved and is this the way that other employers
within the steel industry across the UK behave towards organisations
like yourselves representing the workers?
(Mr Leahy) I think it is a traditional British Steel
model of consultation, that is true, in public and in private
ownership. It is a model that we advocate must change because
it is now a multinational company, a significant proportion is
now in the Netherlands and there are significantly different procedures
that are applied over there. For instance, they knew that the
merger was taking place nine months before any British worker
knew that merger was on the cards. There is a significant difference
between the way they consult their individual employees in the
Netherlands, in France and in Germany than they do in the UK.
10. Would you say that other firms in the UK
in the steel industry treat you differently from Corus?
(Mr Leahy) I think that there is a more general willingness
to be open about future planning, particularly in terms of investment,
and the problems that the industry faces. It is true that particularly
during the 1980s and 1990s CorusBritish Steel thenhad
a particular modus operandi which is no longer relevant
to the steel industry because now it is a different company, it
is not a British company any longer, it is a multinational company,
and you cannot, in our view, treat employees working for the same
(Mr Shannon) If I could add, because it is the same
point on that. It is now a metals company, it is not just a steel
company, part of its production now is in aluminium and it actually
calls itself a metals company, not a steel company. Because it
is the largest metals company from a steel position in Europe
and, I think, the third largest in the world, to answer the question
directly, at the moment there are a number of aluminium mergers
taking place between equally large companies. Consultation with
the units is moving apace on that, they are kept informed and
there is a discussion that does not impinge on their competitiveness
but is in a totally different atmosphere from the one with Corus
or the old British Steel. To answer the question directly, there
is a distinct difference in approach and attitude toward this
particular merger and these issues from other large metals companies.
(Mr Leahy) If we take a company like Avesta, which
was 51 per cent owned prior to the changes recently by British
Steel, they proposed that they would close a works in Sweden and
because of the consultation period that is required by law they
ended the consultation period and, in fact, decided to keep that
plant open with a new product range. Under the plans for Avesta
the plant in the UK was due to stay open but what happened was
the Swedish plant stayed open and the British plant closed.
11. Are you suggesting that the old british
steelsmall "b"industry approach to consultation
and redundancy is being sustained as much as anything because
that is all that is required, whereas on the continent within
the EU there are different requirements of companies in relation
to employees, in relation to consultation? They do the minimum
that is required here and they adhere to what is required on the
continent, but unfortunately from your point of view more is required
of employers in the Netherlands than there is in the UK.
(Mr Leahy) And the net effect is that the Netherlands'
employees and representatives are far better briefed on what is
going to happen, for instance, to Llanwern than the employees
12. Could you perhaps provide us with some documentary
evidence of this, not only in relation to the Dutch experience
but also the Swedish one to which you have alluded.
(Mr Leahy) Yes.
13. In a number of industries we have had statements
made by colleagues, particularly in relation to the car industry
and engineering, where it has been suggested that it is easier
and quicker to sack folk in Britain. Not always cheaper, I have
to say, but easier and quicker to sack in the UK than it is in
parts of continental Europe. If you could provide us with that.
(Mr Leahy) I will do, Chairman.
(Mr Shannon) Can I just reinforce that point. One
of the ways without the financial element in there is if you have
a good consultation process that allows you to mount a different
strategic argument then by definition you are liable to be more
successful in the defence of that industry. It is not just a matter
of them taking a hard-nosed commercial view, they know when they
look at the two parts of the industry, one in the Netherlands,
one in the UK, that they have got a more difficult approach and
they have got to justify that in greater detail and over a longer
timescale than they have in the UK. Now if you are faced with
two parts of two plants on an equal footing, which one will the
employer choose in terms of which is the more difficult one to
close in consultation terms as opposed to the other one? That
is the effect we are seeing of the differences in legislation.
They still shut plants in Europe. That does not mean to say plants
never close in Europe, they do on economic grounds, but the route
that they get to is in that sense more difficult than it is in
(Mr Leahy) I will give you another example: Corus
decided to shut their long products business in Ijmuiden in the
Netherlands and they also decided at the same time to shut down
Shelton works. Shelton works was shut down earlier and people
were made redundant earlier, not within a 90 day period but within
a very short period. The Ijmuiden plant were given 18 months to
two years for those redundancies to take effect. It was a completely
14. Just to pick up that last point, was that
because of legislative provisions in the Netherlands or are you
aware of any other reason why that was the case?
(Mr Leahy) They have the regulations and they have
to go through that process, so they are duty bound to stick by
the legislation. Corus's policy is whatever the minimum standards
are in each country, they will observe those minimum standards.
They treat their business as a British business unless they have
to treat it differently because of the regulations in various
15. You talked about investment earlier on and
certainly your submission seemed to indicate that you feel there
is not enough investment in the UK industry. Can you tell us why
you think that is the case?
(Mr Leahy) We can give you an example and that is
rail. We have one rail producer in the UK, and that is Workington.
There was a question about whether or notwe were not consulted
about thisCorus would invest in longer rails. It would
have cost around £35 million in our estimate. Instead, they
invest in Sogerail in France and they pay £80 million to
the company and invest a further £25 million. Michael will
give you the details. In total this was in excess of £100
million. We now have a situation where Workington is on short-time
working and shifts have been reduced. We are told by Corus even
though this is the only rail producer, if there is an increase
in demand, notwithstanding the £80 billion that is going
to be spent on the infrastructure, they are probably to come from
France. Now, I have to say if that was reversed and we were talking
about using all British produced rail to invest in France, I think
the French Government would have something to say about that.
16. There certainly seems to be no shortage
of demand for rail in the future given what has happened in the
last couple of weeks. I do not think you have told us why that
is the case. Is it simply currency?
(Mr Shannon) No, it is not. They would arguethey
will speak for themselvesit is how you perceive your overall
position. The investment in Sogerail in France, which we would
have argued had we been consulted was short-term and indeed uneconomical,
because they are currently saying to us they believe in terms
of the London network and the amount of money that would need
to be invested there, they can actually import it cheaper from
Sogerail in France into the London network than they can from
Workington. We then asked for the statistics and the facts to
support that argument but those were denied to us. When we say
to them "if you can actually show us the economic evidence
of this, open the books so we can see that", we run into
a brick wall. We get no economic or financial justification for
that. All of our figures show that for a proportion of that investment
into somewhere like Workington you can actually supply the UK
network cheaper and they do not produce any evidence to show otherwise,
they just say to us "we have taken a strategic decision and
that is an end to the debate".
(Mr Leahy) I think what is fundamentally important
is they would argue that when we transfer steel into Europe, 50
per cent of all steel that we produce in the UK is exported, 50
per cent of it, and 75 per cent goes to Europe. If we had the
chief executive here he would say transportation costs are a significant
element. We estimate that it costs £40 a tonne to import
rail from France. He tried to tell us at a meeting that I was
at that it is more expensive to transfer rail from Workington
to the South of England than it is to transport it from France
to the South of England. We have asked, with the Council, to look
at all these things, as Bob said, to go into the detail and come
up with some alternatives. They have said no to that. We are suspicious
that there is a cover-up here going on, that it is about strategically
investing abroad rather than investing in the UK notwithstanding
the temporary problem with the exchange rate.
17. What you are saying is that they have made
a strategic decision basically to rationalise their UK capacity,
to run it down, because they see it in their long-term interests
to invest elsewhere and at the end of the day that will be better
for them as a business?
(Mr Shannon) No, I do not think it is going to be
better for them as a business. I think they made a decision on
figures that (1) we cannot see and (2) they will not show us.
If any company, it does not have to be a steel company, has an
economic case to make then they should make it in an open and
transparent way that does not affect their competitors. We cannot
get Corus to actually make that case to us. All of our figures
show the reverse of that, that it is more economic to maintain
that part of the UK infrastructure in the UK. Otherwise all we
have is a statement to rely on. Yes, they do say that but there
are no statistics or facts to support it.
(Mr Leahy) The other very important thing about this
announcement of running down Workington is we believe that five
shift operations are unsustainable economically and it will eventually
close. It cannot run economically on five shifts. Inevitably,
if this decision is not revised Workington will close. It is our
only strategic rail producer and, if Corus has the business, all
of Railtrack's needs will be produced in France. We say that we
have a strategic issue here and the Government should look very
carefully in terms of its rail investment, the £80 billion
that the Deputy Prime Minister announced, from our strategic national
18. You have said that Corus say it is cheaper
for them to produce abroad yet they have not produced the figures.
Either they are right and they just do not want to produce the
figures or they are wrong. How could they be getting it so wrong?
(Mr Shannon) It would not be the first company that
has got a problem. There is a graveyard full of companies that
have made mistakes, just as the prisons are full of lawyers who
have made mistakes over the years. That in itself is not unusual.
We have adopted a very, very constructive position towards the
company itself and the workforce has shown that over the years.
There has been mention of other industries where there are tripartite
talks that address the real problem and understand the change.
Ship building is a good example of that, they understand the changing
nature of the industry itself. In the end what you do get is an
acceptance from all sides of the base facts and then you can build
on them or not from there. Our difficulty all the time is we are
continually confronted with just the decision making, the sharp
end of this process, without any discussion. You could easily
then become very cynical and say the problem the pound has got
is being used as part of an argument to invest elsewhere because
although it is a real argument you could use that at every stage
of every part to cover up any incompetence or inefficiency in
the decision making process and simply say "it is all a currency
problem". Although that is a major part of it, it is not
all about the currency.
19. If it is not the currency, what is it? What
has driven them to take a strategic decision to invest elsewhere?
(Mr Shannon) I think that when they merged with Hoogovens
in terms of the companies' view, they did not sit down as two
companies and work out what was in their own strategic interest
and where they were going. Both companies needed a merger in terms
of their own future prosperity and both of them had aborted attempts
to deal with this in the past. We think what they had was almost
a shotgun marriage that came together very, very quickly. It has
still got two chief executives, which is unusual in any merger,
even though the old British Steel is the majority partner in that
organisation. We are suffering now from the lack of that strategic
overview of the new company. For instance, it argued very strongly
and correctly that it was going to provide metals solutions, that
is why it has retained the aluminium arm and it is unique, it
is the only metals company in the world that keeps both of these
parts of its organisation intact in that way. It has not moved
from that position and is now taking the opportunity to rid itself
in that sense of its workforce in the way that we described earlier.
(Mr Leahy) It is true to say that they did take a
strategic decision that they wanted to be closer to what they
saw as a bigger market. Maybe they did not see at that particular
timethis decision was made over 18 months agoany
future in rail production in the UK. Of course, the announcements
have been made and the horrific disasters have occurred and with
the investment that is now going in, we have said to them "listen,
you need to rethink your strategy because circumstances have changed"
but they have devoutly said "no, we are not". The reality
is that £80 billion in the infrastructure, if things do not
change, will be produced in France.
(Mr Walsh) There is just one point. The Hatfield disaster
has caused a rethink on the part of Railtrack. They need to replace
the existing rail much more quickly than they had anticipated.
They need to do it in a short time. The capacity at Workington
is there at the moment and, all being well, Workington should
be fully employed for a time more. If the disaster had happened
a year down the line and Workington had gone out of business there
would not have been that strategic resource there to replace the
rail, except from overseas where the costs would be greater and
there are always possibilities of disruption of supplies from