Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  1. Good afternoon. Welcome to the Welsh Affairs Committee. This is an appropriate day to be talking about the future of Welsh jobs, being of course St David's Day. I think most of us here have got our daffodils. Can I just say before we start that the ISTC has provided the Committee with a memorandum of evidence and although normally that would be available to everyone in the press and public galleries, on this occasion some of the information they have given us so far is still subject to negotiation, so we have been asked to withhold publication for the time being. We will publish it with the transcript of evidence of this session, which I hope will be available in two to three weeks' time from the Stationery Office and on the Committee's web site. Sir Brian Moffat is not due to arrive here until nearly four o'clock, so if we finish taking evidence from the Unions before then the Committee will go into private session to discuss the line of questioning to Sir Brian in the light of the Unions' evidence. In that event I am afraid we will have to ask the public to vacate the room for a short time since the rules of the House forbid us from deliberating in public. If we can go on to your evidence, Mr Leahy, perhaps you could first of all, introduce yourself and your colleagues.

  (Mr Leahy) Thank you, Chairman. First of all I must apologise as a Welshman that I am not wearing my daffodil. Unfortunately they did not have any in Hertfordshire where I live at the moment. On my immediate right is Bob Shannon, who is the National Officer of the AEEU covering metals. On my immediate left is Mike Walsh who is Head of ISTC's Research Department, and on his immediate left is John Rowse, National Officer of the Transport and General Workers' Union covering steel.

  2. To give you some background into why we are looking at this, obviously the DTI Committee have taken evidence already on the issue but theirs is part of a long running look at the steel industry. As a Committee we decided that we needed to look at this issue because of the potential loss of jobs in Wales. We hope that they do not happen and that is what we are hoping will come out of our deliberations. The first and probably the most important question for yourselves is, do you think that the restructuring programme proposed by Corus is necessary and are there any alternatives?
  (Mr Leahy) The short answer is no, Chairman, in our view. Steel is a very highly cyclical industry. It suffers from peaks and troughs. At the moment the demand for steel in Europe is six per cent higher than it ever has been. However, prices are fairly hard and also we have a problem with the exchange rate. Corus exports 50 per cent of its overall product. Seventy five per cent of that goes into the European market, so we recognise that there are problems but we believe that those problems are very short term and therefore Corus are being extremely short-sighted in their analysis of cutting three million tonnes of capacity from the British steel making industry. We believe that there are alternatives to the proposals that they have submitted.

  3. Can you outline briefly any alternatives? We may come in more detail to those later but what kinds of things are we talking about?
  (Mr Leahy) First of all, because the industry is cyclical some members will know that at the point of merger with Hoogovens to make Corus British Steel gave nearly £700 million to the shareholders. Because the industry is cyclical and it suffers from peaks and troughs it is always wise to have a safety net to take you through the bad times. Having given this amount of money to the shareholders and the whole of Corus being substantially in debt the problems that were experienced with the exchange rate meant that there was no safety net and therefore it put them into serious difficulties. We would question the prudence of management in the way that they have dealt with their financial arrangements. As far as alternatives are concerned, we have not had the opportunity to discuss any alternatives with Corus. They have been very tight-lipped about precisely what they were going to do. There was a lot of media speculation about precisely what would happen but my colleague from the AEEU will expand. We have had numerous meetings with management requesting them that we have a proper consultative process where they could outline in detail their difficulties and we could have a dialogue about alternatives that we could present to them. We have, subsequent to the announcement, presented proposals to them at Llanwern, Ebbw Vale, Bryngwyn and Shotton. Those are still being worked out in detail, but in general terms it means yes, capacity cuts but keeping in place the current plant configuration which throughout Corus could produce 20 million tonnes. We were told at the point of the merger that they were going for expansion, they would produce over 20 million tonnes of steel Corus-wide, and the economic circumstances when we were told that have not changed at all. In fact, the exchange rates are now better than they were at the point of merger.
  (Mr Shannon) Perhaps I could expand on Michael's points. Perhaps I should apologise for not being Welsh but perhaps I could adopt that honour for five minutes today in terms of commitment. Our major difficulty with Corus has been that because we are not naive in terms of a large multinational when it comes together and merges in this way, that often symmetry is a euphemism for either cutbacks or job losses. We have consistently urged them, almost from day one, to enter into a discussion with us and the workforce about their short, medium and long term future. The basis of that has not been to make Corus commercially unviable; just the reverse. It has been to said to them that we are also students of the market, where it is, where it is going, and we believe that the workforce, who they consistently praise—Sir Brian Moffat goes on record time and time again talking about the excellent workforce we have in the United Kingdom—should be involved in that. The one element that is missing in all of that rhetoric is to trust the workforce to enter into a dialogue with them about their plans and then to look at alternatives with them and deal with that in a constructive way. It is very instructive that we have just had announcements in Europe of another large steel merger. We have not had the outcry in that way that you would expect on the plans. Yes, there are concerns by the communities; yes, there are concerns by the trade unions, but there is a huge expectation that if that comes about there will be dialogue, there will be consultation, in terms of how that is put together. We have consistently, after the merger, asked them about that, and the Government attempted to facilitate that dialogue in those early days. We always run into this with them. Time and time again we are told that there is not going to be a return to beer and sandwiches, whatever that means; it is probably claret today. Consistently we have had that argument put to us, that Corus does not believe that there is a role for the trade unions and the workforce and the community in that dialogue. We have said that even at this late stage if they would enter into that, if they would trust the workforce and the communities, there is a way through this. That is not if you like a starry-eyed view of the market place. We have said to them that we know the only way they are going to stay in the United Kingdom is if they are commercially successful, and we have asked if they will enter into that dialogue with the workforce, because the workforce have shown ever since the sixties, since the industry was denationalised, that they will come up with the goods time and time again. Each time the best we have ever had from them in terms of notices of closure is 48 hours. That is the best they have ever done in telling us about their future intentions, even to the resignation of their two Chief Executives. You get an hour's notice of the major change in what that company is doing. We would still appeal to them that there is still time to sit down and recognise the plans that are being made, the local plans and indeed the national plans, which is an open offer to them for assistance in doing this, but it will require this company to be almost dragged into the 21st century in terms of their consultation process with what everyone regards as the best workforce in Europe.
  (Mr Rowse) I too am not Welsh but Cornish which is slightly closer. To echo much of what Bob and Mike have said, one of the problems that companies face is that we cannot take bad news as well. They think that unless they throw bad news at us cold somehow we cannot sit down and discuss that with them as rationally as we can with other processes. It is squaring that circle. Companies are always prepared to talk to us and share quite sensitive information about their future programmes and plans when they are in an expansion mode, but have a great deal of difficulty in talking to us about some of the more difficult positions. We have all said to Corus that nobody underestimates that there is a problem, but in this day and age you cannot just assume that your workforce should not and cannot be a part of the solution to that. We have all seen how, with the integrated economy and society that we live in today, every single person and every single mode of transport is important to the process. The company wants to go on from this no doubt and therefore how it deals with this problem is important. I have to say that they have made a start since all the pressure that was put on them. It was enormous pressure but they have made a start on that and we hope that the discussions going on in the localities are treated like that, with integrity, so that they are meaningful discussions. So far so good, Chair.

Mr Paterson

  4. What was the attitude of your three organisations to the original merger?
  (Mr Leahy) Generally we welcomed the merger because most industries are now global and certainly steel is a global industry. In practical terms British Steel is a relatively small player in terms of the steel industry worldwide. We generally welcomed the merger with the promise that was made that Corus (a) was going to keep its plant configuration intact, (b) was going to produce more than 20 million tonnes of steel, and (c) was going to expand the business in terms of downstream activities, and certainly expand the aluminium business which would take steel through the bad times because of the cyclical nature of the industry. Generally, on the back of those promises, we welcomed the merger.
  (Mr Shannon) We recognised it as a commercial necessity. There was no doubt that the old British Steel on its own could not compete in the market if it stayed as a single entity in the way that it currently has been very successful. It was their commercial decision to merge with Hoogovens and we obviously would not get involved in that partnership. That was a commercial decision that they took and informed us of that in the normal way that multinationals do. What we wished then, once the decision was taken, was that it would be as successful as it could possibly be once that merger had been announced and the process was under way, and again we urged consistently that if there were going to be symmetries that ran from that—and I remember the words the previous Chief Executive used. He said, "Two plus two equals five" and that was based on an expansion of the industry to move forward as a metals company, not just being dependent on steel. This was a big selling company. Not many large companies act as metals companies and said they were approaching all their companies with metals solutions, whatever that meant. It was optimism in that sense and not a iron cast guarantee. Nobody expected that things would not change, but they did say at the time of the merger process on the configuration within the industry that they could see no reason why it would immediately change in the future.


  5. They in fact used the word "synergy", did they not?
  (Mr Shannon) Yes, there were synergies. The exploration of that meant research facilities, administration. This was the hard core because once configuration goes, due to the enormous expense of getting it back, we know of no instance where it has come back, so we obviously pressed that point as part of that. That was dependent on our attitude towards the merger and we did receive with that caveat those assurances.
  (Mr Rowse) We do not see that as a problem now even. We still see it as a good idea. Much of what the ISTC has said is correct, that there is a cyclical problem and there is a problem with the exchange rates. There is not a problem in our view with the shape of the company and its ongoing direction to expand into a global company. It was in that context that all unions welcomed the merger.

Mr Ruane

  6. How does the productivity of Welsh steelworkers compare with that of, say, French steelworkers or Dutch steelworkers? If possible, without going into too much detail, how has that improved or not improved over time?
  (Mr Leahy) My Head of Research will give you the exact figures but in broad terms productivity in British Steel, which is old British Steel and the United Kingdom side now of Corus, has increased ten per cent year on year, which is three times the national average in manufacturing, which is around three per cent, so fairly significantly. We are 15 to 20 per cent on Corus's own estimations more efficient than Ijmuiden, the plant in the Netherlands. We are more productive—and Michael will give you the figures—than our counterparts in France, Germany, etc, so we are the most productive steel industry in Europe.

  7. Is there a common unit, so to speak, like man hours per tonne?
  (Mr Leahy) Yes. We can give you the numbers.
  (Mr Walsh) There is a direct comparison with Ijmuiden, the Corus plant in the Netherlands, and Llanwern and the figure of 15 to 20 per cent is right. It takes steelworkers in Wales about 100 minutes to produce one tonne of crude steel. It takes workers in Ijmuiden two hours.

Ms Morgan

  8. Could you say that again please?
  (Mr Walsh) In Wales a tonne of crude steel is produced in one hour and 40 minutes. In Ijmuiden it takes two hours.


  9. Are they keeping that steel plant open?
  (Mr Walsh) Oh yes.
  (Mr Leahy) It remains untouched.

Mr Llwyd

  10. Have they not just recruited some people there?
  (Mr Leahy) There are some job reductions. Not long after the merger they transferred their Long products business, which is construction engineering—there are two essential businesses in Corus. One is Construction and Industrial and one is strip products. When you talk about Wales it is the strip products business. In Teesside and Scunthorpe it is the construction and industrial business. What they decided to do post merger was to amalgamate all their efforts in construction and industrial in the United Kingdom so there were redundancies announced in Ijmuiden of 585, but they were over a two-year period. As part of that proposal they closed Shelton works in Stoke-on-Trent. It was shut within three months of the announcement because of the difference in the legal framework in which we operate in the United Kingdom.


  11. So that we can get it right when we ask Sir Brian Moffat about this plant in Holland, which is obviously not as productive as our Welsh plants, can you spell the name for us?
  (Mr Walsh) I-j-m-u-i-d-e-n.

Mr Caton

  12. The other bit of the equation I guess is comparative wage rates. How do they compare between United Kingdom steelworkers and others?
  (Mr Leahy) In fairness they are very difficult to compare because you are not comparing like with like. Their terms and conditions of employment are better. They have a shorter working week. For instance, we work on average 39 hours but there is a great deal of overtime being worked at the moment. We have not made a direct comparison—obviously we would do in the future—of wage rates but of course the social costs in the Netherlands are far greater than they are in the United Kingdom.
  (Mr Shannon) It is also worth bearing in mind how that was handled. It was the same announcement in a similar way. There was a whole raft of dialogue between the trade unions and the company itself. They got an agreement on that. Despite taking that rump of the workforce over, they had a long notice lead-in. They were able to put in alternatives. The workforce in Ijmuiden have got a legal right to employ their own expert to look at the proposals of the company and put alternatives to it. All that took place and in the end they reached an amicable agreement with the company.
  (Mr Leahy) We did say to the Trade and Industry Select Committee that the workforce in the Netherlands knew some six months before we did that discussions were taking place about a merger and they did put in place a social pact in order to secure their jobs as a consequence of the merger. Of course we never had any such opportunity.

Mr Paterson

  13. Could you clarify the name of the plant at Ijmuiden because Sir Brian Moffat, talking to the DTI Select Committee, said, "We have announced that the Netherlands plant be closed this next month", talking about the Ijmuiden Long Products Mill.
  (Mr Walsh) The comparison is between the strip products production in Ijmuiden and Llanwern. Corus did decide to close the Long Products Mill producing the heavier types of steel just after the merger was announced but, as you see, it has taken a long time to implement.
  (Mr Shannon) Virtually the whole of the Hoogovens workforce is employed on one site at Ijmuiden. It was built after the Second World War. It is a huge site, larger than anything we have got in the United Kingdom.
  (Mr Leahy) Approximately 10,000 people.
  (Mr Shannon) And they took out part of that.

  14. It is on the sea?
  (Mr Shannon) It is a man-made port.
  (Mr Leahy) Hoogovens had a very small C&I business compared with British Steel so it was decided that it was not cost effective that the long products C&I business would be produced in the United Kingdom. Incidentally, that has been consistently the most profitable as a business for British Steel before the merger. The strip mill had made profits but not to the extent of the C&I business.

Mr Smith

  15. Four and a half years ago when I worked with an inward investment company in South Wales we used information from Llanwern particularly, that it was then one of the most efficient steel plants in the world—not Europe, the world. Was that the case four and a half years ago, and is it in your opinion still the case now?
  (Mr Leahy) The short answer is yes.

Mr Ruane

  16. Does steel production elsewhere in the EU receive subsidies direct or indirect which it does not receive in the United Kingdom?
  (Mr Leahy) We cannot say directly what subsidies are made. We have a list of state aids that go to European manufacturing, not specifically steel, but that gives an illustration that the United Kingdom is bottom of the pile with the exception of Portugal. We have some statistics that we could show you in terms of state aid for manufacturing. We do not have statistics for steel alone.
  (Mr Shannon) One of our difficulties with state aid is the enormous monies given to the European infra structure and that lowers the cost. A lot of them are still state run. They receive massive subsidies and it is a decision of those communities, but of course if you are transporting across large areas this is an important part of your cost base. If you continue to support that it does not show up in the normal way that the Commission would show it, but certainly it puts a lot of British manufacturing at a disadvantage because we are not assisted in that way. It puts the costs up and it has always been a problem how you find that and work out how that assistance is given. Port charges in the United Kingdom are considerably higher again, and you still get a lot of state aid which goes into the port structures in mainland Europe.
  (Mr Leahy) To give you an example, if we take the United Kingdom at 100, Portugal has 56, Sweden 132, Spain 207, Austria 215, the Netherlands 220, Greece 298, Belgium 327, France 339, Germany 429, Denmark 429, Ireland 436, Luxembourg 442, Finland 287 and Italy 585, in terms of state aids and that is a comparison of state aid in manufacturing.


  17. What are those units of, Mr Leahy?
  (Mr Leahy) It is an index of 100 comparing the United Kingdom at 100 with the rest of the European countries in terms of state aid to manufacturing.

Mr Ruane

  18. The Trade and Industry Committee asked Sir Brian Moffat if he had looked for government assistance and his reply was—and this is uncorrected, by the way—"We have talked about it. We have not directly asked for it because it is illegal, illegal subsidies".
  (Mr Leahy) The industry is covered by the Treaty of Paris and the Treaty of Rome. For workers there used to be what were known as ECSC payments, European Coal and Steel Community benefits, which translated into ISERBS benefit which gave steelworkers pre and post redundancy benefits because the purpose of the exercise was to reduce capacity. Where capacity was reduced there were state aids for training and re-training, subsidised employment after redundancy, etc. The Conservative Government in 1994 unilaterally withdrew that from the United Kingdom, although they kept it for coal because it is the European Coal and Steel Community, so we were fearful that we were going to fall between two stools. On the one hand our members would not have the ISERBS benefit and on the other hand we were constrained by the state aid rules. I understand that the Welsh Assembly were looking at ways in which they could help Corus particularly in terms of rates, in terms of research and development, all of which we understand are available and are considered to be permissible state aids under the existing codes of practice.
  (Mr Shannon) There is money available under the ESF; I am sure you will be aware of it. It is Objectives 1 and 3. They are certainly suitable to this. Again you go back to the company wanting to enter into that dialogue and talk about how that money was used and how it was spent. We keep going back to our original starting point. It was enormously difficult to get them to talk about that because you have to make an application to draw that money down. That is the process we consistently run into because we are now operating under the 90 days' notice. The clock is ticking on that. We believe that certainly Objectives 1 and 3 are suitable and possibly Objective 2 in terms of drawing down those monies.

Mr Llwyd

  19. I am sure you are right on objective one but additionally, bearing in mind the objective one designation, is it not possible to introduce other state aids legally—for example, corporation tax cuts, NI cuts for employers' contributions and so on? There are several levers that can be used, were there a sensible dialogue on matters.
  (Mr Shannon) It requires the commercial will to get involved in that.
  (Mr Leahy) Corus, since privatisation in 1988 when it was controlled by the government—I think there is a mentality in Corus which suggests that they do not want any government interference in the running of the business. They do not see this as a helpful initiative. They see it as probably interference rather than help. They are very paternalistic. They think they always know best and they are not particularly interested in other people's ideas.

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