Examination of Witnesses (Questions 1
THURSDAY 1 MARCH 2001
J LEAHY, MR
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 praiseSir
Brian Moffat goes on record time and time again talking about
the excellent workforce we have in the United Kingdomshould
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.
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 thatand 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
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 productiveand Michael will give
you the figuresthan 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.
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.
10. Have they not just recruited some people
(Mr Leahy) There are some job reductions. Not long
after the merger they transferred their Long products business,
which is construction engineeringthere 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
(Mr Walsh) I-j-m-u-i-d-e-n.
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 comparisonobviously we would do in the futureof
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
(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.
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.
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 worldnot 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.
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
(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.
18. The Trade and Industry Committee asked Sir
Brian Moffat if he had looked for government assistance and his
reply wasand 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.
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 legallyfor
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 governmentI 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.