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We believe that the strategies and measures implemented by UK steel producers mean that the steel industry is better placed than ever to cope with the rapidly changing global landscape. Between 2004 and 2006, Corus made investments totalling £330 million to improve quality and productivity. That was a real vote of confidence by the company in its employees and it resulted in a return to profitability. In 2004 the company announced that it was in profit for the first time since 1999. Pre-tax profits reached £580 million for 2005 and the consolidated share price rose from a
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low of 20p in 2003 to 375p in September 2006, prior to the takeover battle, as my hon. Friends said. That is a remarkable performance for a company that was considered to be on the verge of bankruptcy just three years earlier. The qualities of the work force that have brought about such a remarkable turnaround must bode well for the future of Corus’s operations in the UK.

Corus is not the only UK steel producer that is thriving. Following a management buyout in 2005, the management team at Sheffield Forgemasters fought to undo a long history of neglect and underinvestment to turn around the ailing business and build a strong international order book. Sheffield Forgemasters is now a major UK company with unique facilities and capabilities, supplying super clean metals and some of the largest castings and forgings in the world.

Mr. Morley: My hon. Friend has outlined a good case on the enormous investment and innovation in steel in this country. I know that my right hon. Friend the Chancellor has set up a £1 billion technology fund for training and innovation, but, if I may say what my hon. Friend cannot, I think that the Government have a role to play in supporting manufacturing.

I would also be grateful if my hon. Friend acknowledged the presence of my hon. Friend the Member for Brigg and Goole (Mr. Cawsey), another Whip who cannot speak for himself.

Jim Fitzpatrick: As someone who served in the Whips’ Office for four years, I am only too pleased to acknowledge the presence of my hon. Friend the Member for Brigg and Goole (Mr. Cawsey), given the restrictions placed on him by his office.

My right hon. Friend the Member for Scunthorpe makes an important point, which echoes the point made by my hon. Friend the Member for Llanelli a moment ago. My hon. Friend the Member for Aberavon quoted the comments made by the Minister for Trade, my right hon. Friend the Member for Makerfield (Mr. McCartney), to the Trade and Industry Committee about the Government’s commitment. I will certainly feed back the comments made tonight to my colleagues in the Department.

As I was saying, Sheffield Forgemasters is supplying some of the largest castings and forgings in the world. Other investments include a new £80 million melt shop in Cardiff—the first of its type to be installed in the UK for more than 20 years. There is more good news for steel making in south Wales. A new colour coating line is going in at Falcon Steel in Newport. That is the first such equipment to be installed in 25 years. I notice that my hon. Friend the Member for Newport, West (Paul Flynn) is also in his place.

The UK steel industry has also responded through innovation. British steel companies respond constantly to meet the challenge from competing materials to ensure that steel remains the material of choice for thousands of manufacturing applications. For example, 70 per cent. of the steels used in automotive production today did not exist 10 years ago. Corus is co-operating with leading world steel companies to develop ultra-light steel solutions for car designs to
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meet society’s demands for safe, affordable, fuel efficient and environmentally responsible vehicles for the 21st century.

The Department of Trade and Industry has enjoyed an excellent relationship with the UK steel sector over the years and, during that time, there has been regular contact between DTI Ministers and officials and senior industry representatives. The Government have embarked on a partnership with the UK materials industry to promote technology transfer, drive up productivity and help UK companies to move into higher-value-added products. The National Metals Technology Centre, located at the Corus Swinden laboratories in south Yorkshire, was the first initiative to emerge from that collaboration. The world-class technical facilities and expertise of Corus are now benefiting all of the UK metals industry. As a result, sales have increased, some jobs have been created and many others have been safeguarded. We have also created an industry-led umbrella organisation, Materials UK, to take forward the recommendations and strategy set out in the materials innovation and growth team report published in March 2006. We will continue to work closely with the UK metals industry on issues affecting the future prosperity of the sector.

Compared with other major industrial sectors, the steel industry has been much more fragmented than its suppliers, its customers and producers of competing materials such as aluminium. Over the last few years, steel producers have looked to integrate horizontally with other mills and vertically with raw material suppliers and steel distributors to secure their futures. A key objective in steel industry consolidation is for producers to get more bargaining power, lower prices for raw materials, and more stable, if not higher, prices for finished products.

In August 2005, Corus announced that it would seek opportunities for partnerships in countries with access to low-cost raw materials and high-growth markets in order to secure its future competitive position. On 30 January, Tata Steel of India outbid its rival, CSN of Brazil, with an offer to acquire Corus for £6.2 billion. We are pleased that a significant step has been taken to resolve the question of Corus’s future ownership, which must have been a cause of great uncertainty for the company’s employees and stakeholders. However, hon. Members will realise that it is now for the shareholders to decide on the merits of the Tata deal.

According to Corus, the Tata deal would provide access to low-cost raw materials and to high-growth markets for products where Corus has a particular strength. That would enable the company to compete on a global scale, and thereby help to secure the future of plant and jobs located in the UK, particularly in the event of a downturn in the steel market. Corus is a leading supplier to many of the most demanding markets around the world, such as the automotive, aerospace, packaging, rail and engineering markets. The Tata takeover would offer Corus access to new and burgeoning markets for those products in India and Asia. There would also be opportunities for Corus to penetrate niche sectors in those markets, for example for its coated sheet products.

Tata said that it would preserve agreed capex—capital expenditure—plans, and would honour current employees’ terms and conditions. It also said that it had
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no plans at present to cut jobs or change the location of Corus’s main businesses. An advantage of the Tata deal is that the Corus senior management team will remain in place, offering Corus stability in the initial transition period. Under Tata’s plans Philippe Varin, Corus’s chief executive, is set to stay for two years.

In its original offer, Tata made a number of proposals to ensure the long-term security of Corus pensions. They were discussed with and approved by the trustees, as several colleagues mentioned. Now that the announcement has been made on the recommended final offer for Corus, the pension trustees will meet Tata once again in order to develop the constructive discussions on pensions held earlier in the bidding process. Those earlier discussions resulted in a memorandum of understanding on pensions that will need to be looked at in the light of the revised offer. The memorandum includes various commitments to the schemes, including security measures to address the financing structure of the takeover arrangements.

As regards the Corus engineering steels pension scheme, Tata has offered to make an immediate cash injection of £126 million to clear the accounting deficit—a point that was made by several colleagues in the debate. Normal expectations would be for a staged payment over a period of time. On the British Steel scheme, Tata will increase payments from 10 per cent. to 12 per cent. until March 2009. During these lengthy discussions, the trustees have been supported by a team of professional advisers. The pensions regulator has been kept closely informed of developments by the trustees throughout the process.

Openness to investment, including through mergers and takeovers, is an inherent feature of a modern economy and an important driver of growth and innovation. The UK is regarded as one of the best places in the world in which to do business and foreign investment is making a major contribution to UK wealth. That means new jobs, with some 90,000 in 2005, which was an increase of 19 per cent. on the previous year. Many of those were high-quality, well-paid jobs. The production of many lower-cost, labour-intensive goods is now carried out in developing countries that have lower wages, while the UK is moving towards technology-driven production with high added value.

I hope that hon. Members will be pleased to hear that the plans for the redevelopment of the former steelworks site are apparently well advanced. The project will produce long-term benefits for Ebbw Vale and the broader community in Blaenau Gwent. The £200 million redevelopment of the site, which is driven by the partnership between the local council and the Welsh Assembly Government, will create new places for living, working and recreation. It will provide office space, 500 new homes, a learning campus, a local general hospital, a primary school, a railway station and a wide range of arts and leisure facilities. The project will create 75 new jobs, as well as up to 25 trainee posts for local people who will gain skills in the sector.

In addition, UK Steel Enterprise, a subsidiary of Corus, provides business finance and workspace in former steelmaking areas to encourage job creation. It has built the 30,000 sq ft Ebbw Vale innovation centre, which has been in operation for two years and is, I am
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advised, running at approximately 80 per cent. occupancy. Some 40 per cent. of the total costs of the project came from the European regional development fund and UK Steel Enterprise continues to finance the running costs of the innovation centre.

The hon. Member for Blaenau Gwent called on Tata —I am sure that he would say much the same to other steel companies—to develop training partnerships with other sectors and companies so that they can benefit from the steel industry’s excellent training programmes. I am pleased to inform him and my hon. Friends that on 25 January my right hon. Friend the Secretary of State for Trade and Industry launched the national skills academy for manufacturing, The academy is about putting employers in the driving seat to develop more responsive ways of enabling them and their work forces to benefit from better skills. It will provide an opportunity for all manufacturing companies in the UK to gain access to world-class training through their regional contacts and supply chains. I am delighted that many UK leading manufacturing companies have demonstrated their support and leadership by becoming regional lead companies. Through the platform, any company—large or small—will be able to access the academy and what it has to offer. The sector skills council, which works with the steel industry on training and skills, is also directly involved in the academy. No doubt Tata will wish to build on the links.

The Government accept that the closure of a steel plant can have an impact on other sectors, especially suppliers and contractors. Assistance for areas that are affected by steel closures is co-ordinated through the regional development agencies. The UK has a good record of bringing new investment to former steel-making areas. For example, in Corby, targeted Government assistance and inward investment promotion attracted a wide range of new activities following the closures in the early 1990s.

It will be some time before Tata’s operations will be in a position to supply slab to replace the output from Port Talbot’s blast furnace operations, if indeed the company’s plans for expansion in India and elsewhere come to fruition. In the meantime, Port Talbot will build on the success of recent investments and efficiency programmes to drive down costs further so that it can compete in the global marketplace.

Teesside Cast Products is effectively a joint venture with a major purchasing consortium that is led by the Swiss-Italian based Duferco. The consortium, which also includes Italian, Korean and Mexican steel processors, purchases Teesside’s output of slab under a 10-year off-take contract that commenced in late 2004. We have no reason to believe that Tata plans do anything other than to continue to honour that contract, which will secure the future of the plant until at least 2014.

Although there have been no specific meetings with Ministers, the company and trade unions have kept DTI officials and advisers up to date as the situation has developed. Further meetings will be held if requested by Corus and the unions.

It would not be appropriate for me comment on speculation about how Tata plans to finance its takeover of Corus. We have not seen any details as yet, and as far as we are aware the company has not made any final decisions on the matter.


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The hon. Gentleman and other colleagues raised the question of the EU emissions trading scheme. For phase II of the scheme, which runs from 2008 to 2012, the level of the overall quantity of allowances to be allocated in the UK represents an annual reduction of 29.3 million tonnes of carbon dioxide against projected “business as usual” emissions for the phase. The Government have carefully considered the ability of individual sectors to take on a reduction in allocation below “business as usual”, taking into account the extent to which a sector can pass on the costs of reducing emissions and the extent to which it is technically and economically feasible to abate emissions. We concluded that all sectors apart from the large electricity producers sector should get allocations equal to projected “business as usual” emissions.

For phase II, therefore, the steel sector’s cap will be set in accordance with its projected “business as usual” emissions. Those emissions projections include provision for the emissions of new entrants as they are based on output growth assumptions that relate to demand for a particular product, without regard to whether it has been produced by increased output at existing capacity or output from new capacity.

The Government have introduced some policy changes in respect of eligibility for allowances for new entrants in phase II. In phase I, extensions in the iron and steel sector were eligible for allowances under an “integrated” approach—that is, where the extension increased the emissions of the site as a whole. We concluded that, for phase II, extensions should be eligible for allowances only where they involved a piece of equipment that directly produced emissions that had to be accounted for under the EU emissions trading scheme.

We do not believe, however, that this change should discourage new investment, as allocations to new entrants need to be seen in the context of allocations to the steel sector as a whole. Although the benchmarks will in future provide much lower levels of allocation to expansions at existing plants, a move to a direct approach will also involve a reduction in the number of allowances that the steel sector has to provide to the new entrant reserve. Therefore, incumbent allocations will be higher as a result—the existing installations will receive more of a sector cap that is growing to reflect the investments that are being made. Although Corus as a whole will be worse off under a direct approach, we estimate that its reduction in allowances would be very small—equivalent to around 1.3 per cent. of its allocation. That reduction is concentrated at one plant, Port Talbot; six others receive a higher allocation under a direct approach.

We consulted on those proposals and have fully reflected on the responses that we received in finalising
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our plans. Overall, I believe that our policy encourages the cost of carbon to be taken into account and balances the different interests within the steel sector.

The Government fully appreciate the impact that high and volatile energy prices have had on the operational effectiveness of industry, and the impact on jobs and investment ,which has been raised by a number of colleagues. However, the market has responded to tight supply by developing new gas import infrastructure, and there is now increasing interconnection between the UK and continental Europe and Norway, through the IUK, BBL and Langeled pipelines, and the new LNG terminal at Teesside.

That has resulted in the wholesale price of gas falling significantly. Average day-ahead prices from January 2007 have fallen by 60 per cent. compared with January 2006, and are now at levels similar to those in January 2004 and January 2005. The average day-ahead price for the fourth quarter in 2006 fell by 52 per cent. compared with the average price in the same quarter in 2005. In addition, average forward prices for the fourth quarter in 2007 in January 2007 had fallen by 42 per cent. since they peaked in April 2006. Those trends also reflect convergence with gas prices in Europe.

The Government have also been working to ensure that the market is able to maximise supplies of gas to the UK for this winter. The situation for industrial customers buying gas at current prices should therefore have eased. However, we recognise that gas prices remain uncomfortably high for users who negotiated contracts when the price was high. There has also been a large drop in wholesale electricity prices during the past year; for example, the average day-ahead base load price for January 2007 was 55 per cent. lower than the average price in January 2006. There has been a similar downward movement in price for future contracts: the January 2007 average price for delivery in the second quarter this year is 48 per cent. lower than the average second quarter price for 2006 reported in January of that year.

I hope that I have covered most, if not all, of the points raised by the hon. Member for Blaenau Gwent, together with those raised by my hon. Friends, but I will be happy to write to colleagues if that is not the case. I emphasise again the overall positive tone with which the development has been welcomed by hon. Members in the Chamber this evening. I conclude by once more congratulating the hon. Member for Blaenau Gwent on securing this important debate and express my appreciation to my hon. Friends for their contributions.

Question put and agreed to.

Adjourned accordingly at fifteen minutes to Nine o’clock.


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