Select Committee on Welsh Affairs Minutes of Evidence


Memorandum submitted by The ISTC—the Community Union

1.  EXECUTIVE SUMMARY

  1.1  The ISTC is the UK's largest steel union and the largest union in Corus.

  1.2  When Corus was created in 1999 it employed 33,000 people in the UK. If the redundancy announced in February 2001 are put into effect this will be reduced to 22,000 by 2003—a reduction of over 33 per cent.

  1.3  In Wales, Corus employed 11,500 in 1999. Should the redundancies go ahead this will have been be reduced to 7,000 between 2000 and 2003—a reduction of over 40 per cent.

  1.4  UK steelworkers are the most productive in Europe, and at least as productive as the best American and Asian steelworkers.

  1.4  Corus has rejected offers from the ISTC and other trade unions to work in partnership for the good of the company, its employees and its shareholders.

  1.5  Corus refused to engage in discussions with the ISTC about possible action to weather its short-term difficulties in advance of its announcement. The ISTC calls on Corus to think again.

  1.6  Corus rejected discussions with an ISTC-led consortium to take-over Llanwern.

  1.7  Corus has made no significant investment in the UK since the merger. Its restructuring review contained no plans—it merely intends to "sweat" its UK assets. This places a question mark over the company's long-term commitment to steel making in Wales and the rest of the UK.

  1.8  The redundancies announced in Wales, should they be carried out, will be a body blow to the economic and social fabric of Welsh steel communities and the Welsh economy in general. It is an unnecessary, irreversible long-term action to tackle a short-term problem.

  1.9  The ISTC, the other steel unions, the UK Government and the Welsh Assembly will shortly be putting a proposal to Corus that we believe is in the best interests of its employees, its shareholders and the country. We hope that they will be willing to grasp the hand of partnership.

  1.10  The UK Government needs to adopt a strategy to preserve this important strategic industry.

  1.11  The ISTC believes that the ease with which UK employees can be dismissed promotes overtime and redundancy as the flexibility adapted by bad employers. This irresponsible "boom and bust" approach is hampering the efforts of the UK's international competitiveness.

  1.12  All the promises made by the ISTC and the other unions since the merger have been kept: all the promises made by the company have been broken.

2.  INTRODUCTION

  2.1  The ISTC—the Community Union welcomes the opportunity to submit a memorandum of evidence to the House of Commons Welsh Affairs Select Committee's inquiry into Job Losses in the Steel Industry in Wales.

  2.2  The ISTC is the United Kingdom (UK) steel industry's major trade union, representing between 70 and 80 per cent of UK steelworkers. Corus is the UK's largest steel producer, with a market share of between 52 per cent to 54 per cent in carbon steel products the UK. The union represents the largest number of workers employed by Corus.[1]

  2.3  The ISTC and other unions representing Corus employees have pressed consistently for consultations with the company in advance of the announcement of major restructuring plans. However, despite promises that consultation would be extended, the unions have never had the opportunity to see or to discuss the company's proposals before they were announced publicly.

  2.4  At the time of the merger the Corus Board announced that it wished to increase market-share in the UK and the EU as a whole, and retain the existing UK plant configuration, and that no redundancies would result from the merger.

3.  CORUS REDUNDANCY ANNOUNCEMENTS IN THE LAST 12 MONTHS

  3.1  On 16 June 2000, Corus announced 4,500 redundancies, of which approximately 1300 where in Wales at the Bryngwyn plant in Gorseinon, the Llanwern plant near Newport, the Aluminised Products in Pontardulais, the Port Talbot plant, the Shotton Plant in Deeside, the Tafarnaubach plant near Tredegar and the Trostre plan near Llanelli. On 11 October 2000 the company announced another 210 job cuts, 145 of which were in Wales, at Port Talbot and Shotton. Prior to these redundancies, Corus employed 33,000 people in the UK, of which 11,500 where employed in Wales.

  3.2  On 30 August 2000, following months of lobbying by the ISTC and the other steel unions, Corus announced that it would proceed with its maintenance plan at Llanwern, which would include the relining of the No. 3 blast furnace. This was due for completion by the end of September 2001, subject to:

    "An ongoing business viability within Corus in order to ensure that it continues to be in the overall interests of the company".[2]

  3.3  Following the resignation of Corus' joint Chief Executives on 5 December, the company Chairman Sir Brian Moffat was appointed acting Chief Executive and announced a "radical restructuring" of its UK operations.

  3.4  The ISTC requested meetings with Corus to discuss its plans. An initial meeting with Sir Brian Moffat, Allan Johnstone, Corus' Human Resources Director and other senior managers was held on 22 December, followed by a subsequent meeting on 8 January. No details of the proposals were given at either meeting, despite the ISTC requests for the opportunity to work in partnership with the company to overcome its short-term difficulties before any firm decisions were taken. The company rejected these offers.

  3.5  On 1 February 2001 Corus announced a further 6,050 redundancies in its UK operations by 2003. Over three thousand of these job losses would be in Wales. They are made up of the closure of its Ebbw Vale and Bryngwyn plants; the closure of the pickle line, cold mill and one electro-zinc line at Shotton and the closure of iron and steel making operations, of the annealing and tempering facilities, a reduction in activity levels at the hot strip mill and cold mill operations, at Llanwern.

  3.6  The redundancies announced do not include former Corus employees whose posts have been contracted out in the last several years. This may well result in a further 1,000 jobs being lost in Wales. These redundancies, if put into effect, will reduce Corus' UK workforce to 22,000—a reduction of over a third within three years. In Wales the figure will have declined to 7,000, a reduction of over 40 per cent during this short period. The announcement meant that Corus had gone back on their decision to reline the No. 3 blast furnace at Llanwern.

  3.7  The 1 February Corus statement showed projected losses for the 12 months is estimated to be £1,050 million of which all but £23 million is caused by redundancy payments and writing off capital assets.

  3.8  Following the announcement on 1 February, Corus agreed to suspend the commencement of the compulsory 90-day consultation exercise required by the Trade Union and Labour Relations (Consolidations) Act for a period of 14 days—in effect extending the consultation period for this length. The 90-day consultation period commenced on 15 February.

4.  THE ISTC'S LLANWERN PROPOSALS

  4.1  Throughout December and January, following the restructuring review announcement, speculation, which apparently came from sources close to the company, suggested that a number of UK plants were at risk. The focus of the speculation centred on the integrated plant at Llanwern in Newport.

  4.2  In the absence of any willingness on the part of Corus to consult the ISTC or to the union's offer of partnership, the ISTC explored contingency plans to preserve the jobs of their members employed by Corus in the event of a major redundancy announcement.

  4.3  The Llanwern integrated steel plant is one of four such Corus plants in the UK. Llanwern produces crude steel and turns it into strip steel products. Because of overcapacity in Western Europe and the imbalance between Sterling and the Euro exchange rates, Llanwern is currently a major source of losses for Corus on carbon steel production in the UK. The ISTC believed that, should the company choose to close the whole plant, it should explore the possibility of taking it over, in the informed belief that the plant could be operated profitably and the jobs secured. This would have had the additional effect of stemming the company's major source of losses and allow it to focus upon managing its other UK plants where they were making losses.

  4.4  The ISTC identified sources of industry expertise and of finance who were confident that Llanwern had good prospects of producing and selling three million tonnes per year of strip steel products as an integrated plant. They were ready to form a consortium with the union to take over the plant should Corus be willing to discuss a transferral of ownership.

  4.5  On 23 January the ISTC wrote to Corus formally asking for discussions with the company in a co-operative spirit about taking over the plant should Corus decide to close it in full or in part.

  4.6  On 29 January ISTC received a reply from Sir Brian Moffat stating that:

    "I do not think it appropriate to meet to discuss a possible acquisition of Llanwern by you".

  The reason given by Sir Brian for this was:

    "We do not wish to invite any more competition in the UK over that which is already present from imports."[3]

  4.7  The partial closure at Llanwern ruled out ISTC's hope of being able to take over the plant: the profit for the plant would reside in the sale of finished steel products. Even if Corus felt forced by the weight of public opinion to offer the steel-making facility to the ISTC consortium, it 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 operations.

5.  THE IMPACT OF THE CLOSURES ON THE WELSH STEEL INDUSTRY AND WELSH STEEL COMMUNITIES.

  5.1  The 6,050 redundancies announced by Corus on 1 February will have a devastating impact on the plants themselves and on the communities in which they are based. No area of the UK will be affected more than Wales, both North and South.

  5.2  3,000 of the redundancies announced will definitely be in Wales. 1,800 of these jobs are scheduled to be lost in Bryngwyn, Llanwern and Shotton by the end of this year. Following on from the 1,450 redundancies that were announced last year this means that over 3,000 steel jobs in South Wales will have gone within 18 months, should the redundancies be carried out.

  5.3  A recent study,[4] suggests that for every 100 jobs lost in the steel industry, another 40 jobs directly dependent upon them will be lost. The cumulative impact of the loss of steel jobs in Wales would be more than doubled, to at least 6,000, once the impact on the local economy is taken into account. For communities such as Ebbw Vale and Gorseinon this will mean an end to one of the few high quality, high skill jobs in an already blighted area, for instance in Ebbw Vale unemployment is already over 10 per cent—way above the national average. The impact on Newport, and Deeside will be similar.

  5.4  The same study suggests that, at best, there would be limited re-employment of steel workers in other industries. The chances of former steel workers achieving the high wage, high quality jobs that they currently enjoy are slim, to say the least. Thus, even if they do gain employment there is still likely to be a net loss of income their family and community. Nonetheless, if job losses cannot be avoided, the ISTC is committed to providing steel workers with the best retraining that can be provided.

  5.5  Prior to the merger with Hoogovens to form Corus, British Steel was the largest manufacturing industry in Wales and accounted for a significant percentage of Welsh exports. Steel still remains the single largest sector of the Welsh economy, with nearly 6 per cent of the 200,000 Welsh manufacturing employees employed by Corus alone.

  5.6  The impact of the job losses in steel communities, should they go ahead, will be felt far wider than the steel communities in which they exist—they will impact on major sections of the Welsh Economy and society. The fall-out would affect not only direct and indirect suppliers to the steel industry, but also Building Societies and other mortgage companies, education and health services, and other related community provisions.

  5.7  It is clear that the social and economic cost of the proposed Corus redundancies would be horrendous for the communities in which they will fall, leading to an increase in family breakdown, illness, drug and alcohol abuse and crime. It is also clear that the cost will be disproportionately born by North and South Wales.

6.  THE STEEL UNIONS' OFFER OF PARTNERSHIP TO CORUS

  6.1  Immediately following Corus' announcement on 1 February the ISTC began to formulate an alternative way for the company that involved working in partnership with its employees, the unions that represent them, the UK Government and the Welsh Assembly.

  6.2  The ISTC accepts and understands that the trading conditions for all UK manufacturers have been difficult for the past three years and Corus has suffered accordingly. However, the steel industry is a highly cyclical industry: In 1996 Corus' UK operations made a profit of £1.1 billon; if Corus' provisions for capital write-offs, redundancy payments, and other costs related to the cuts are stripped out the company made only a loss of £23 million in the 15 months from October 1999: thus the maintenance of steel capacity in the UK makes not only strategic sense but economic sense. It is for these reasons that the UK Government and the trade unions are keen to work in partnership with Corus.

  6.3  The ISTC, the other steel trade unions and the Government are exploring ways that they could work within the rules of the European Coal and Steel Community (ECSC) Treaty and the competition rules of the European Union to provide the opportunity to ride out the storm of temporary market conditions of diminished demand for strip steel products and a weak Euro. Their objective has been to provide Corus, working in partnership with all its stakeholders, with an opportunity to ride out the temporary market conditions so that it is able to take a more rational analysis of future capacity and workforce requirements during a potentially more positive market environment.

  6.4  The steel unions and the UK Government recognise that the immediate priority for Corus is to reduce cash outgoings and production at a time when demand and prices are near the nadir of the cycle for strip steel products. However, they also believe that it is unwise for the company to irreversibly reduce its UK steel-making capacity and be prepared to add further to its debts by borrowing to fund what may well be unnecessary redundancies and capital asset write-offs.

  6.5  Following consultations with the European Commission, the ISTC has established that the ECSC Treaty permits a range of flexible measures which will relieve the strain on Corus. In particular, we have established that, since the jobs are under risk, in-service training would qualify for UK Government and European Union financial support.

  6.6  The steel unions have drawn up national "umbrella" proposals for the affected Corus plants based upon on retraining. Under this umbrella each affected plant is drawing up flexible, effective proposals which will allow output to be reduced and retraining commenced. These proposals will not only result in it being unnecessary for Corus to produce steel which is not able to produce profits on, but will also maintain the UK's current steel-making capacity.

  6.7  Corus has already committed itself to retraining ex-employees after they have been made redundant. The steel unions and the Government believe that the company should agree to shift this training to before redundancy. A retraining package, associated with reduced overtime—currently every UK Corus plant has workers working unnecessary overtime at the same time as overall staffing is being reduced—and flexible work patterns, would enable the company to delay any proposed redundancies until market conditions improve for a period of up to 12 months.

  6.8  Corus has already said that it will fund this post-redundancy retraining. In-work training would attract European Social Fund resources as well as Government/Welsh Assembly support, over and above that which could be garnered for post-redundancy training, thus it would reduce the amount that the company itself would be required to contribute. If trading conditions did improve sufficiently, as the steel unions, the UK Government and many market analysts expect them to, Corus would have a workforce with improved skills and productivity: if conditions did not improve within the 12 month period and redundancies were still required, those entering the job market would do so with transferable skills. These skills would not only benefit them individually but would also make their communities more attractive places for domestic or inward investors, thus helping to tackle the regional skills and jobs imbalance that is affecting the UK.

  6.9  The individual plant proposals are currently being drawn up by the trade unions at each threatened plant. Outline proposals for all the affected plants, including those in Wales, will be put to Corus by the trade unions, with full Government and Welsh Assembly support.

  6.10  The lower level of activity at each plant would enable essential maintenance to be carried out, including the extension of the life of the No. 3 blast furnace at Llanwern for up to a decade, at minimal cost to Corus.

7.  THE FUTURE FOR THE WELSH STEEL INDUSTRY

  7.1  UK steel workers, including those employed by Corus, have made tremendous sacrifices in the past two decades, with latest figures showing that they produce 571 tonnes per person, up from 533 in the past year. This makes them the most productive steel workers in Europe and as competitive as the most productive steel workers in North America and Asia. The employees feel that their efforts and flexibility have not been matched by equivalent leadership, ability to make decisions and business acumen by the Corus board, who have turned the cash-rich British Steel into a company with debts of £1.8 billion dependent on bank support to service its debt.

  7.2  Since the merger, Corus have undergone a complete u-turn in strategy: moving from proposals to increase total market-share and production, to one of reducing production and maintaining proportionate market-share i.e. managing decline. The ISTC believes that Corus should be trying to exploit underlying competitive advantage stemming from high labour productivity to actively compete in the whole European market rather than to merely maintain its UK market-share.

  7.3  The ISTC is extremely disappointed that Corus management have not sought to engage with trade unions to develop further short-term flexibility and identify savings that would reduce the financial pressures on the company until market conditions improve.

  7.4  The ISTC finds it strange that Corus should make a decision to significantly reduce its UK workforce and steel-making capacity at a time when Sterling has consistently weakened against the Euro. Sterling has fallen 11.5 per cent from its peak against the Euro in May 2000, and the UK Government has given strong indications of its desire to join the single currency should the conditions be right.

  7.5  All the actions of the Corus Board since the merger suggest that they have no long-term commitment to the production of steel making in Wales, or the rest of the UK for that matter. The decision to close the steel making capacity at Llanwern and instead send steel on a 580 mile round trip from Teeside—following a period when Corus have highlighted high transport costs within the UK as factor of major concern for other areas of their operations—suggest that a shadow hangs over the long-term future of the plant. The advantages flowing from an integrated plant making its own steel will be lost forever under the present proposals. Similar concern must be felt towards Shotton.

  7.6  The poor marketing and performance of the Corus Executives since the merger suggests that the company does not have managers of the calibre necessary to compete and survive in the highly competitive global steel market.

  7.7  Corus' refusal to make any substantial investment in its UK operations since its creation—following on from the tradition of the post-privatisation British Steel—suggests that their primary focus is sweating the assets, both human and physical, in order to satisfy short-term shareholder pressures.

8.  CONCLUSION

  8.1  The ISTC believes that Corus have been guilty of grave short sightedness in response to short-term pressures. These have been made worse by imprudent management decisions, for example the decision to return £683 million to shareholders at the time of the merger and to accumulate debts of over £1.8 billion.

  8.2  Steel is an industry notoriously vulnerable to sharp cyclical fluctuations and it is sensible business practice to keep reserves to tide a company over low points in the cycle. The ISTC made this clear to Corus when it decided to return the £683 million to its shareholders: its views were ignored.

  8.3  The ISTC believes that the efficiency gains and sacrifices made by the British Steel, and then Corus UK, workforce have not been matched by the standards one would expect from visionary management intent on the company's growth. Whilst there are pressures relating to the strength of Sterling and demand in the UK, the union believes that these could be overcome with greater entrepreneurial flair and strategic coherence.

  8.4  The ISTC believes that it is perverse for the UK Government to have a strategic approach to the maintenance of key industries in the UK such as the power supply industry B in the form of coal, and shipbuilding industry, in case of national emergency and yet not for steel. The UK steel industry is a national strategic asset, crucial to economic and defence interests. The loss of critical mass in the steel industry is likely to lead to a further run-down in UK manufacturing, arising from the need for UK manufacturers to import steel from the continent with all the disadvantages of high transport costs and uncertainty of supply.

  8.5  Once steel capacity is lost it cannot be reconstituted quickly and only at extreme cost to the Exchequer. The ISTC believes that it is clear that Corus has no long-term commitment to the retention of steel-making capacity in the UK and that the Government and the Welsh Assembly must develop a strategy for the steel industry in UK before it loses critical mass and declines irretrievably.

  8.6  Fundamentally the ISTC believes that Corus can have a profitable long-term future as a steel producer in Wales and the UK. However, no company can prosper if it does not trust and utilise its major asset B its workforce. It is clear to the ISTC that rejection of partnership in favour of paternalism and secrecy is the major obstacle in the way of the company achieving this.

  8.7  The ISTC, the other steel unions, the UK Government and Welsh Assembly will shortly be putting plans to Corus which we believe are in the best interests of the company, its employees, its shareholders and the country. We hope that they seek to work in partnership with us.

  8.8  The ISTC welcomes the Government's commitment to review the consultative rights of UK employees. The relative ease with which UK employees cab made redundant is one of the reasons for the short-termism of the Corus management. The chimera of flexibility has for too long been used to drive down standards for UK employees. The situation at Corus, where the unions have offered to discuss flexibility but have had their offers spurned, shows that the only flexibility that some UK companies, such as Corus, are interested in are those of greater overtime and greater redundancy. The "boom and bust" approach within companies must be eradicated if the UK is to be truly internationally competitive.

  8.9  Promise promises made by the ISTC and the other unions since the merger have been kept: promises made by the company have been broken.

Michael J Leathy

General Secretary

27 February 2001


1   Corus Press Release 8.1.01. Back

2   Corus Press release, 30.8.00. Back

3   Letter to Michael Leahy, ISTC General Secretary, from Sir Brian Moffat, Chairman and Acting Chief Executive of Corus, 23.1.02. Back

4   Alternative Plans for the British Steel Industry, Edited by Professor Peter Fairbrother, Cardiff University, November 2000. Back


 
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