Select Committee on Trade and Industry Fourth Report



38. Our decision in July 2000 to undertake a brief inquiry into the current state and future prospects of the UK steel industry sprang in large measure from concern at the succession of cuts at Corus plants through the first half of 2000, and the operating losses for the six months to April of almost £200 million on UK carbon steels announced in June 2000. In August 2000 Corus announced that it hoped to be investing £35 million on relining No 3 blast furnace at Llanwern, implying a continuing commitment to steel production there. When Corus announced its half-yearly results in September 2000, the Chairman of Corus reported the continuing unprofitability of Corus' steel production operations, attributed in part to exceptional operational difficulties in the UK and the Netherlands. Reference was, however, made to buoyant world demand, in particular in Asia, to help improve the situation. In October 2000 several activities were mothballed and shifts were reduced. When we heard evidence from UKSA and the trades unions in November 2000, it seemed that the threat of further major reductions had diminished: an impression confirmed by the first signs of a reversal in the downward slide of the euro against sterling.

December 2000 and January 2001

39. In early December 2000, however, it became apparent that mounting trading losses in October and November — frequently cited since by Corus as £1 million a day[105] — had become intolerable to Corus shareholders. The joint Chief Executives, Mr John Bryant and Mr Fokko van Duyne, resigned on 5 December 2000. The Chairman, Sir Brian Moffat, the former Chief Executive of British Steel, took over as Chief Executive and gave public warning of a further major restructuring. We decided to await Corus's pending announcement before reporting to the House. On 8 January 2001, Corus gave trade unions representatives an assurance that it would make its plans known by the end of the month. We had provisional plans to hear evidence from Corus on the morning of Wednesday 31 January.


40. After almost seven weeks of uncertainty, Corus announced on the morning of 1 February 2001 that over 7,000 jobs would be lost, with the closure of iron and steel making at Llanwern near Newport in South Wales and the closure of the Ebbw Vale tinplate works. Around 2,000 jobs were to go on Teesside, including the closure of the company's offices there. Hundreds of further jobs were to go around the country. Basic capacity was cut by around 3 million tonnes a year, and a number of downstream operations were severely reduced. Corus's announcement of 1 February emphasised the company's intention to concentrate on maintaining its shrinking domestic market share.[106] The Secretary of State made a Statement to the House on the afternoon of 1 February 2001. We heard oral evidence from Sir Brian Moffat and other Corus directors in the afternoon of Wednesday 14 February 2001.

Parliamentary debate etc

41. There have been two recent debates in Westminster Hall on the steel industry: one before the decisions, on Wednesday 10 January 2001 and one after, on Wednesday 7 February 2001.[107] The Science and Technology Committee published its Report on the reductions in Corus' research and development resources on 25 January 2001, based on oral evidence heard in November 2000.[108] The Welsh Affairs Committee heard oral evidence from Corus on Thursday 1 March 2001. We have not sought to pursue detailed points arising from the proposed closure of individual plants or lines.

1 February announcement

42. Corus have been severely taken to task by the Prime Minister, the Secretary of State for Trade and Industry and others for the substance and the manner of the 1 February announcements.

  • secrecy: the Prime Minister and Secretary of State have described as "unacceptable" the refusal of the company to give any details of its plans to Ministers in advance of the 1 February announcement, thereby denying them the opportunity to discover (a) if there were any steps the Government and the devolved administrations could take to assist the company and (b) failing that, to prepare regional strategies for dealing with the aftermath of the cuts if carried through. There has also been criticism of their refusal to take the trade unions into their confidence in advance of the announcement.

43. The plans announced on 1 February are of course those of a private company, responsible for its decisions not to Government or Parliaments, or even to its stakeholders, but to its shareholders. The stock market had already reacted favourably to hints in November that there would be radical cuts. It reacted very favourably to the 5 December 2000 announcement, sending the share price soaring by around 40 per cent. It reacted favourably to the 1 February 2001 announcement; despite taking a once-off £1.04 billion restructuring charge, announcing a 15-month loss to December 2000 of £1.2 billion, and axing its dividend, the Corus share price rose by about 10 per cent, although it has since fallen back. Steel analysts quoted in the press were divided between those who praised the plans, and those who felt the company had not gone far enough and would have to undertake further restructuring.[111]

Consultation with Ministers

44. The dismay of Ministers at being kept in the dark is understandable. There was of course no shortage of evidently well-informed media speculation as to the likely results of the review. The likely retention of the sheet rolling mill at Llanwern despite the closure of the rest of the plant, and the closure of Ebbw Vale were both reported in the press some days before the public announcement.[112] Sir Brian Moffat had separate meetings with the Prime Minister, the Secretary of State, and the Welsh First Secretary in the course of January. But the company "refused to discuss details of their overall plan".[113] Sir Brian Moffat told us that he had indicated the regions likely to be worst affected as early as the beginning of December but that "I could not specify plant by plant or department by department until we were in a position to do so...We were first obligated to tell the people affected...". He also emphasised that Ministers had long been aware of the problems confronting the industry and the company "in terms of the worsening climate as far as industry is concerned....It was not news in terms of the trade scene".[114]

45. It has been reported that the UK and Welsh authorities put together a package of possible measures to assist the company, necessarily working within the tight constraints of European rules on steel aids. At a meeting on 24 January 2001, the Prime Minister is said to have offered a package worth around £20 million, including training and site development grants, a rates holiday and some arrangement on the Climate Change Levy. Sir Brian told us that no specific package had been offered but that he had been given general indications of the sort of help which might be possible under EU rules. It had been clear to him that it would not be of a scale or nature to make any substantial difference to the outcome. Direct subsidy was known by the company and the Government to be impossible within the EU rules on state aids to steel.[115] In general terms he had sought in discussions a more favourable climate for investment in manufacturing; but had made no specific demands or requests.[116]

46. We regret that Corus felt unable to take Ministers more fully into their confidence in December while they were preparing the proposals announced on 1 February. We are not however convinced that there was much that Ministers could have done to help the process. It was no secret that Llanwern was at risk, nor Ebbw Vale. While in presentational terms the announcement of a Task Force — as for Longbridge — or a Partnership — as for Luton — may be desirable, the outcome for individuals affected by such closures is unlikely to be measurably different if there is some delay in making such arrangements. We have detected some feeling in business that detailed advance briefings may be for the advantage of Ministers but not of the company or its workforce. Ministers and officials had every reason to be aware of problems over the Climate Change Levy: over Corus' commercial rates payments: over electricity prices. It need not have required a crisis to bring forth proposals intended to meet those concerns.

Consultation with workforce

47. The unions told us that they had "never had the opportunity to see or discuss the company's proposals before they were announced publicly". Their offer of a partnership to work together to overcome short-term difficulties at meetings on 22 December 2000 and 8 January 2001 had been rejected. Their expression of interest set out in a formal letter of 23 January 2001 in taking over Llanwern as part of a consortium had been refused on the grounds of Corus not wanting to invite any more competition than was already present".[117] The unions told us that " the partial closure at Llanwern ruled out ISTC's hope of being able to take over the is clear that the original consortium members would not feel confident that Corus would not try to use its market dominance to damage their current UK steel dominance".[118] Sir Brian Moffat told us that the unions now accepted that running on Llanwern even under their ownership would jeopardise other plants in the UK.[119]

External issues

48. We explored in evidence Sir Brian the extent to which the issues raised with us three months earlier by the UKSA or other general issues had influenced Corus' decision. Some of these matters are reflected in our principal findings set out above, for example on dumping of steel and energy costs. We were particularly struck by his suggestion that the recovery of the euro against sterling, which might be supposed to have given Corus a real boost in export markets and in retaining their share of the domestic market, had unfortunately coincided with a fall in steel prices on the world market. This had not hitherto been cited as a reason for the decision.


49. Sir Brian raised the repeated attempts made over recent years by British Steel and now Corus to have their commercial rates reduced.[120] In subsequent written evidence, Corus told us of their appeals against the valuations made in 1990 and 1995. It would seem that a sizeable sum will have to be repaid to them to cover 1990-95; "the process has taken 11 years and has had a significant cash flow impact on the business". The company expects further reimbursement following appeals against the 1995 revaluation. The higher rates following the 2000 reassessment have had to be paid in full in Wales, but were phased in England. Corus also noted the "wide differential" between comparable sites in the UK and the Netherlands.[121] Whether these issues would have made a significant difference to the financial health of the plants concerned is open to conjecture.

Remediation of contaminated sites

50. We raised with Sir Brian Moffat the question of cleaning up the contaminated sites which Corus had left in the recent past, would be leaving as a result of the plans announced in February, and might be vacating in the future. Sir Brian told us that —

the company would abide by the law in cleaning up sites where necessary. He gave as an example the efforts devoted to cleaning up Ravenscraig and the "total scaremongering" at that time which had suggested that the site was irremediable.[122]

51. We have no independent evidence as to the scale of the remediation required as a result of the 1 February 2001 announcements, nor any reason to doubt the commitment of Corus to its statutory duties. Following our recent visit to the North East, however, it has become plain to us that there is genuine concern that the scale of cleaning up the older steel-making sites in particular may be such as to strain the resources of the company. The liabilities arose in part when under public ownership. There is some uncertainty as to the nature and extent of the legal and financial obligations on Corus to clean up vacated sites, and as to the role of public finances. A clear statement by Government of the legal and financial framework for remediation of steel-making sites, including the powers to enforce clean-up of a vacated site, would be helpful. We would also welcome the prompt publication by Corus of plans for their evacuation of redundant sites, and a proposed timetable for their remediation, so that they can be put to other uses as soon as possible, in consultation with the regional and local authorities.


52. We have the strong sense that the 1 February announcements by Corus of radical restructuring had their roots in the 1990s, when tough decisions on the number of integrated production sites were avoided, and in the City which sensed that Corus was under-performing and had failed to fulfil the promises made at the time of the merger in October 1999 of British Steel and Hoogovens. The value of the euro against sterling evidently made exports to the eurozone the harder, but it has been a short-term phenomenon which a large well-managed company could have been expected to weather. Price fluctuations are as normal in the steel business as the operational production setbacks to which the company's difficulties were in part ascribed in its half-yearly report in September 2000. The car industry's woes scarcely explain such a decision; overall 2000 car production in the UK remains relatively steady. Car manufacturers have always used imported as well as UK steel. Nothing we heard from Sir Brian Moffat has led us to believe that the cuts announced on 1 February are part of a long-term strategy for the company's survival, nor that there have been Government economic policies which could have produced a different short-term outcome.

105  Eg Q 123  Back

106  Ev, pp 57-60 Back

107  HC Deb, 10 January 2001, cols 217-239 WH and ibid, 7 February 2001, cols 233-253 WH Back

108  Second Report , HC 110 of session 2000-01, Corus plc - Research and Development Back

109  HC Deb 24 January 2001, cols 941-2 Back

110  Ev,p 21 para 5.7 Back

111  Jeremy Fletcher of CSFB, Brett Olsher of JP Morgan, Richard Biggs of ABN Amro, as quoted in newspapers, passim Back

112  Eg Financial Times, 26 Jan 01 Back

113  HC Deb, 12 February 2001, col 20w Back

114  Qq 114, 129-130, 151 Back

115  Qq 124-6, 131 Back

116  ibid and Q 134 Back

117  Ev, p 18, paras 3.1- 3.10 Back

118  ibid Back

119  Qq 118-122 Back

120   Qq 127, 148-9 Back

121  Ev, p 81, A2 Back

122  Qq 198-200 Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 14 March 2001