Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



  120. Could it be said that because you are only having a partial closure of Llanwern that, in effect, rules out the possibility of the unions, if they still wanted to, acquiring the plant?
  (Sir Brian Moffat) It is a question of if the unions acquired Llanwern, and this is probably a reason why it has not been brought forward now they better understand the situation, even if they were financially able to do that, and by that I mean actually maintain it in operational terms, the fact is they would prejudice other plants. There is too much capacity, that is our problem. We have got a diminishing market size and as our efficiency improves the market has not improved in size in the UK with it, such that our exports are now in flat products approaching 50 per cent of what we make.

  121. Your view is that no-one else could make any money out of it. Is it up to you to decide that?
  (Sir Brian Moffat) Yes, it is, in the sense that these—

  122. Somebody might be more efficient than you. Is that what you are worried about, competition?
  (Sir Brian Moffat) I have made it quite clear, and it is one area where we are totally in agreement with the unions, I am not complaining about the efficiency or productivity of our workforce or the co-operation. Unfortunately, 50 per cent of what we make has to be exported because the UK manufacturing base is getting smaller progressively. Ten years ago it was only 30 per cent that had to be exported. It was exported in those days to a market which was not as competitive as it is now because we export mainly to Northern Europe and Northern Europe is now being penetrated from the East from the former Soviet Union countries with cheap material, probably below cost. We cannot prove that but that is probably the situation. Therefore, prices are very, very competitive. When you add to that the fact that we have to spend something like £35 a tonne extra to get the material into that market, it is not feasible with normal commodity business to make money in Northern Europe, our nearest market.

Mr Laxton

  123. Can I just come back to the issue of consultation because we have heard this before for example with the closure, or partial closure, of Luton by General Motors who said pretty much the same as you are saying, I suspect, that "oh, yes, we have had lots of consultation discussions with our workforce and we have set the general scene" but then the bombshell is dropped and there is then what I would term appropriate consultation beyond that date. Is that not the same here, that you may be having general discussions with the trade unions and the people you employ about the difficulties in the market but not in terms of dropping the bombshell of closures and then having dropped the bombshell you are in the business of starting after that event the whole process of detailed consultation? Is that not the sort of scenario that has been brought into play?
  (Sir Brian Moffat) No, it is not. I cannot talk about Vauxhall. They are a customer of ours but I cannot talk about the detailed consultative process. I am sure it is a good one. We warned our workforce that we could not carry on losing money at the rate of £1 million a day in the UK, as we were, without prejudicing the whole infrastructure of the company. The unfortunate situation is when it crystallises into a decision which affects a particular plant inevitably it is a shock. It is inevitable.


  124. We have had reports that there were offers of assistance by Mr Byers and Mr Morgan of a rates holiday, training grants, site improvement and rebates on the Climate Change Levy beyond those already on offer. Can you tell us about these offers that you were made? Were they substantial enough to make you think twice?
  (Sir Brian Moffat) I have not had any offers made to me. I have had offers in general terms of "if we could help would it be likely to change your decision?" and my answer has been that against the State Aid Code which Government is constrained by, just like we are constrained by it, I do not see what help Government can make that can detract from the problem that we have got, other than by direct subsidy which would break the State Aid Code. What we would welcome, and indeed the Minister wrote to me yesterday about this, is working with Government and with the trade unions for retraining schemes and inward investment in the communities affected to try to obviate the difficulties which inevitably are going to be caused. We have a company with a budget to work alongside Government and local government and Development Agencies to try to kick start economies in those areas most affected.

  125. Did you seek any help from the DTI or the Treasury or the Welsh administration which they were not able to give you?
  (Sir Brian Moffat) I have said all the way along, and talked with them, that we would welcome initiatives in this training and retraining and job creation field. The Government are now saying they will work with us. They have always said they will work with us.

  126. I am sorry, I do not think you are quite getting what I am trying to say, maybe I am not making myself very clear. What I was meaning was did you go to them and say "look, if you could give us this assistance we could produce steel at a lower price such that it would be possible to get back into some of the markets which we have lost"? Have you approached Government in that way at all?
  (Sir Brian Moffat) We have talked about it but I have not directly asked for it because it is illegal, illegal subsidies.

  127. I am sorry but there are sometimes ways of providing assistance, for example, of an infrastrutural kind which would not be illegal. Surely you have a responsibility to test that? There are enough civil servants in the DTI to work out these things.
  (Sir Brian Moffat) Excuse me, on things like rate reductions, we have been asking for rate reductions for seven years and we have only just been getting them recently. That is our right. It is not a privilege, it is a legal right to appeal against rates if you think you are over-rated. We have been doing that consistently over the years. I do not know of any other reductions we can get in Government taxes.

  128. The Climate Change Levy was one that might have been a possibility?
  (Sir Brian Moffat) We negotiated, and indeed I signed the agreement on the Climate Change Levy, to bring it down from a notional £150 million a year, and protested at the lack of competitiveness that would bring, to just over £8 million. That £8 million a year is more than the whole German steel industry pays. On top of that, exporting from this country through every port costs on average 30 per cent more than it costs to export from the continent into this country. The transportation costs out of this country are double that which you have to pay to import steel into this country from the continent. People, through various lobbies, ourselves included, the associations, make points to Government like other industries have.

  129. It has been suggested you did not keep the DTI and the Ministers and the Welsh Assembly informed over the two months immediately prior to the announcement. Is that the case?
  (Sir Brian Moffat) No, it is not the case. I had three meetings with the DTI, two meetings with the Secretary of State for Wales, and in one of those meetings the First Minister of the Welsh Assembly was also present.

  130. Why I am asking is because the FT on 3 February quoted you as saying that leaks in the past had persuaded you not to keep them informed.
  (Sir Brian Moffat) What the Government wanted me to do was explain in detail how each plant would be affected at a time before we actually formulated and decided the plan. As soon as that plan was completed, literally within 24 hours, we informed our workforce. I said at the time although I could indicate the areas, and indeed did so at the beginning of December, likely to be affected—for example, Wales had to be, because it was going to be in strip in one form or another, and also the North East was a likely area, and this was not news because our people knew of the vulnerability of the areas—I could not specify plant by plant or department by department until we were in a position to do so. We felt, and I still feel, we were first obligated to tell the people affected, that is our first responsibility, coincident with Government being informed and the trade union leaders at national level being informed, and that happened.

  131. If I can get it right then, what you are saying is that you had no faith—and it might well require faith more than anything else—in the ability of Government to make sufficient assistance available to you to keep any of the potential candidates for closure open, and therefore there was no point talking to Government because they could not do anything material for you to keep these plants open?
  (Sir Brian Moffat) The Secretary of State for Trade & Industry agreed that to try to subsidise directly the losses we were making would be state aids and he would not be allowed to do that, and I do not demur from that decision. He is totally correct.

Mr Baldry

  132. Sir Brian, can I put it on the record that I am an adviser to the British Constructional Steelwork Association, who are amongst your customers and use some of your steel. I do not think anyone suspects you or the board of Corus have acted capriciously, but there are a few things we do not entirely understand. Last year on a monthly basis Corus were shedding jobs and running down capacity, and then in the late summer, around August, September, you seemed to be committed to the relining of the No 3 furnace at Llanwern at a cost of some £35 million, and there seemed to be some clear indication you were going to do that, and then come December you announced that you were going to dismiss the chief executives and announced impending cuts. It is not entirely clear what happened in the last quarter of last year to make things so much worse. Was it a fall in the share price? You have explained to the Committee about losing £1 million a day but if that was happening, that was happening throughout the whole of last year, why were you at one stage during last year looking as though you were going to reline the furnace at Llanwern and then, almost within a couple of months, seeming to change your mind on that?
  (Sir Brian Moffat) Steel prices last year began the year quite strongly, and in the first quarter peaked out—one of the shortest cycles we had seen, it only lasted about 15 to 18 months—and then rapidly started to deteriorate. The announcement of the possible reline of the furnace at Llanwern, which was due for a relining in September of this year, was made, I think, round about August—I cannot be precise but I can look that up—that we would take steps to order up some of the longer term materials for that reline but we would review the situation on an on-going basis before finally making up our mind to reline the furnace, and that was very carefully worded. Unfortunately, the commercial situation deteriorated very rapidly in price terms after that, which accentuated the losses, but on top of that the UK manufacturing base with the number of closures which you will remember registered last year went very, very rapidly from bad to worse. That scene has not stopped. Indeed although we hear, for example, that Nissan will continue to make the new model of the Micra up in the North East, and we all welcome that because of the job situation in the North East, the downside as far as we are concerned, and we are a major supplier there, is that they will source their materials and component parts off-shore because part of the agreement is that they reduce their costs by 30 per cent, and the only way they can do that is using the currency advantage to that end and source offshore and we lose more business.

  133. Can I put a couple of comments to you really in fairness to you so you can respond to them? The Secretary of State accused you of short-termism, indeed I will quote the Secretary of State, he said, "Corus needs to be aware that it will stand condemned of short-termism at its worst if its response is to close plants with the loss of thousands of jobs .... Corus should not take short-term decisions over the next few days but look to the long-term." How do you respond to that charge?
  (Sir Brian Moffat) I think we are trying to look to the long-term, because if we carry on the way we are we will prejudice totally the infrastructure of the company and the 22,000 people that will still work in the company after these closures. As I said before, in 1989 exports in flat products alone from the company were 1.6 million tonnes, today they are 2.6 million tonnes. We actually make that out of a configuration which is 20 per cent less in size than it was in 1989, because Ravenscraig is no longer there, and indeed out of the four plants that stand today—Ravenscraig was the fifth—we make more steel out of the four than we did with the five. Productivity is not a problem; our productivity has been excellent. But as our exports have increased by 1 million tonnes, the UK base has decreased by 700,000 tonnes in the same period. The UK infrastructure for steel-consuming goods has got less and less and less. Indeed I was looking at figures earlier today and more steel is consumed in finished imported goods into this country than in steel, whether it is imported or manufactured in this country. That is how big the turn-round has been.

  134. I think there are some BCSA members in Wales who were pretty hacked-off that the Millennium Stadium was not made out of Welsh steel but Italian steel, I think. To what extent have the city and the analysts had an impact on this? There might be those who argue that these are reductions which should have been made earlier, maybe in the 1990s, when you were chief executive of British Steel. To what extent is this a rationalisation which has simply been brought about by the city?
  (Sir Brian Moffat) The rationalisation has not been brought about by the city, the rationalisation has been brought about by the market. This is not a short-term problem, as I have explained, it is a fundamentally long-term problem, and indeed I have asked the Secretary of State for Trade & Industry how industry can work with Government to try to create further investment in manufacturing industry, or a climate for further investment in manufacturing industry, in this country, otherwise the situation looks pretty bleak. We were talking with the trade unions earlier today and if you go round many of our customers in the UK you will find plant that has been there for 30 years, it is not new, and yet if you go to places like Hungary and Czechoslovakia these days and look at the plant there, the competition and the ability of the people as well, because they are not backward by any means, it is fearsome competition and you can start to understand, therefore, the pressures on the scene and the fact that people in distant parts are manufacturing goods and exporting them to this country very successfully. The days have gone when steel was processed into manufacturing goods and in huge quantities exported from this country very successfully.

Helen Southworth

  135. Can I ask whose responsibility it is if specific British industries have not invested in the kind of equipment that their companies needed in order to remain competitive?
  (Sir Brian Moffat) I think it is a shared responsibility. I do not think it is specific.

  136. Shared by whom?
  (Sir Brian Moffat) It is about having the right economy and the right background situation. It is having the facility and the ability to raise money to invest. It is about the skills and the technology that you can bring to bear to create from the tools and the manufactured raw materials the products which are attractive for people to buy.

  137. Do you think Corus has any responsibility in that?
  (Sir Brian Moffat) Of course I do. We would like to work with Government to try to help kick start the infrastructure situation here.

  138. Perhaps you can explain why Corus had no plans for investing in new plant or equipment in Britain when you made your restructuring announcement on 1 February?
  (Sir Brian Moffat) That is not true.

  139. Perhaps you could give us some details then?
  (Sir Brian Moffat) We announced yesterday investment in our mills in the North East, in Humberside and in the Sheffield area. We are spending over £300 million this year.

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