British Steel

Statement

My Lords, with the leave of the House I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy. The Statement is as follows:

“With your permission, Mr Speaker, I would like to make a Statement about British Steel. It was announced this morning that the court has granted an application by the directors of British Steel to enter an insolvency process. Control of the company will now pass to the official receiver, an employee of the Insolvency Service, who will run a compulsory liquidation. The official receiver has made it clear that British Steel employees will continue to be paid and employed, and that the business will continue to trade and supply its customers while he considers the position of the company. In fact, employees were paid early with the May payroll being run yesterday through cash advanced by the company’s lenders.

As the House will recall, I made a Statement on 1 May setting out details of a bridging facility that the Government agreed to provide to ensure that British Steel was able to meet its obligations under the EU Emissions Trading System, which fell due on 30 April. The Government provided the facility to purchase the allowances, worth £120 million, against the security of the 2019 ETS allowances, which are currently suspended pending ratification of the withdrawal agreement. Without this facility, British Steel would have faced a financial pressure of over £600 million—the ETS liability plus a £500 million fine. This would not only have placed British Steel in an insolvent financial position; the charge attached to its operational assets would have been likely to prevent any new owner acquiring the assets in the future. This transaction demonstrated the Government’s continuing willingness to work closely with all parties to secure the long-term success of this important business.

Following this agreement, the Government have worked intensively with the company for many weeks to seek solutions to the broader financial challenges it has been facing. The Government and individual Ministers can act only within the law and this requires that any financial support to a steel company must be made on a commercial basis. In the case of the ETS facility, this was based on the security of future ETS allowances. To provide liquidity to the business in the face of its cash flow difficulties, the Government were willing to consider making a cash loan to the company and worked hard to investigate exhaustively the possibilities of doing this. However, the absence of adequate security and no reasonable prospect that any loan would have been repaid, and the shareholder being unwilling to provide a sufficient cash injection itself, meant that this did not meet the required legal tests. I am placing in the Library of the House the accounting officer’s assessment of these proposals, drawing on professional and legal advice, which concludes:

My Lords, I am grateful to the Minister for repeating the Statement on British Steel made in the other place by his right honourable friend the Secretary of State for BEIS. It rather neatly demonstrates that there is a bit of a gap between what is happening in Parliament, with our discussions on Brexit, and the real world, in which our current political difficulties are causing real and lasting damage to our economy and to our country. If I may say so, the noble Lord rather gave the game away yesterday when his response to the Urgent Question on this same issue contained no information whatever about the state of play in what were ongoing negotiations with the company at the time and merely repeated the hollow sounding platitudes even he must get tired of hearing himself say about how, “Global economic conditions continue to be challenging for the industry”, and that the Government, “are working with the sector, unions and the devolved Administrations to support a sustainable, productive and modern UK steel sector”. Indeed, today’s Statement is almost a repeat of yesterday’s speech with a few added platitudes.

This is absolutely devastating news for the workers, their families and the communities who rely on British Steel directly in Scunthorpe, Skinningrove and on Teesside, and all the way through the supply chain. At least 25,000 people will have been worried sick this morning, wondering whether they will have a job this time next week and what the future holds for them. What plans do the Government have to support the 4,500 people employed directly by British Steel and the 20,000 or so employed by companies in the supply chain?

British Steel is our second-biggest steel-maker and one of only two integrated steel-making sites in the UK. It is the only UK steel plant that produces the rails we use on our tracks, providing almost all those procured by Network Rail and supplying ScotRail, TfL and Translink in Northern Ireland. It also exports a large volume of products across Europe. Surely, in any industrial strategy worth its name, British Steel would be one of the main pillars of our manufacturing capacity and the department would have detailed knowledge of its business plans, finances and operating strategy. Does the Minister agree that it seems to have been blindsided on this?

My Lords, I too thank the Minister for repeating the Statement made in the other place. Yesterday, we talked about the environment of uncertainty around Brexit, which has put pressure on this business. It certainly cannot have helped it in its struggle. I will not repeat those points today, because they have been well made.

Yesterday, the Minister stood at the Dispatch Box and metaphorically tapped his nose and said, “Wait and see”. We did not have to wait long, and what we see is really pretty terrible—for the employees and subcontractors, for Scunthorpe and the other areas in this business and, frankly, for the country. The Government can trumpet the proportion of British steel each department buys, but if this company goes down, there will be a significant lack of steel for these departments to buy.

The Minister says that the Government seek “the best possible outcome”. The best possible outcome for this business is the continuing making of steel in these furnaces. As I am sure the Minister acknowledges, the first job of the receiver is to do everything possible to keep this business going for future use. The priority is to keep the furnaces burning; once the furnaces go cold, the hope for those factories goes cold as well. Can the Minister confirm that this is the number one priority the Government have given the receiver? What other assistance will be available from the Government to keep those furnaces burning?

The Statement alludes to a sticking point around what future aid could be given and EU state aid rules, and reference was made to a letter from the accounting office. Can the Minister tell us what consultation has gone on with the European Union and the Commission, what response they have had in those discussions, who they talked to and when? I am slightly concerned that there is a level of scapegoating going on here.

As the noble Lord, Lord Stevenson, pointed out, there are a number of questions around Greybull Capital. I shall not repeat them, but there are suggestions that the private equity owner of Greybull was unwilling to play ball when it came to the amount of money required to show its commitment to this business. Perhaps the Minister would like to set the record straight on that.

My Lords, I start by agreeing with both noble Lords. I accept the words they used: the noble Lord, Lord Stevenson, said that this was devastating news and the noble Lord, Lord Fox, said that it was terrible news. It is bad news, as my right honourable friend the Secretary of State made clear only an hour or so ago when he made this Statement in another place. He was very grateful for the positive, cross-party support he had from all round the House for what the Government have done and are proposing to do.

The noble Lord, Lord Stevenson, claimed that I said nothing yesterday. I agree that I said relatively little, but at that stage it was not possible to say much. Despite what he seemed to imply, I can assure your Lordships that the department, my right honourable friend and other Ministers have been involved in this matter for some considerable time. They have been in discussions with, as he made clear, the company and its owner, Greybull, and with the unions, the community, suppliers and others. I will possibly write to the noble Lord, Lord Fox, with details of further discussions they have had with the Commission about these things.

There are, however, obviously limits to what government can and cannot do within the law. Our focus now has to be on working with the official receiver to find new partners and new owners. As the noble Lord, Lord Fox, made quite clear, our focus should also be on working with him to keep the furnaces burning, for the very simple practical reason that they lose their value rapidly if they go cold. There is nothing so worthless as a cold steel works, and therefore, as far as is possible, one thing the official receiver will have to do is try to make sure things can be kept going for as long as possible so that he has an asset that is of value to sell on.

I want to make it clear that obviously, we can act only within the law and that requires any financial support to a steel company to be on a commercial basis. I have been advised that it would be unlawful to provide a guarantee or a loan on the terms of any proposals that the Government have made so far. As the noble Lord, Lord Stevenson, made clear, the company did ask for £30 million, but it did not offer any contribution itself and without that it would not be possible for the Government to act.

My Lords, was there ever any prospect of British Steel being selected to provide all the steel rails necessary for the HS2 project, and would that have made any difference?

My Lords, I do not know whether that is the case; I will make inquiries. I know that providing steel for Network Rail is a major part of its business and it is a major supplier. Whether that would be the case for those who are building HS2 is another matter, but obviously that is some years off.

My Lords, the Scunthorpe site sits in my constituency. For those nearly 5,000 employees and 20,000 workers in the supply chain, news that the directors of British Steel will enter into an insolvency process will be devastating, particularly for the families. Does the Minister agree that British Steel’s success is key to any future UK steel strategy because it is a national asset? We should 100% support it in saving our steel industry. Those blast furnaces must continue to burn. Steel has been the backbone of the UK’s industrial landscape for 150 years and must continue to sit alongside the global tech firms.

Coming from Lincolnshire, my noble friend knows exactly the problems faced by those employed by British Steel in Scunthorpe. As my right honourable friend made clear, particularly in responding to a whole raft of questions from those in another place who have constituency interests, one of our first concerns is to ensure that the uncertainty can be removed for those workers. That is why we are encouraged that their pay packets have at least been dealt with as of yesterday. But as I said, we want to work with the official receiver to ensure that this can continue and that a viable, operating concern can be sold on to someone else, so that steel can continue to be produced both at Scunthorpe and at the other two sites.

My Lords, there is a strategic defence requirement for a capability to produce steel. Thirty-seven years ago, in the early hours of the morning my ship sank and blew up in the Falklands, having been attacked for 18 hours. In war, you need to replace ships, and you cannot always rely on people supplying you with steel—or anything—because they might not agree with what you are doing. There is an absolute need to do this. It seems that we have not pulled together our defence industrial strategy in terms of the 100,000 tonnes of steel that we would get from the UK if we built solid support ships in the UK, the 25,000 tonnes of frigate steel if we built the 31e’s here and the 80,000 tonnes of steel for the new ballistic missile submarines. We have given the recipe for specialist steel, at which we are the best in the world, to the French so they can provide us with some. This is not joined up. Does the Minister agree that it is an absolute strategic defence requirement for our nation to be able to produce steel, and that we must therefore pull together a policy and provide support in whatever way necessary to ensure that we have this for the future?

My Lords, as far as I am aware, British Steel is not producing steel in large quantities for the defence industry. Having said that, I take the point that the noble Lord made. It is obviously very important to our defence industry and, more importantly, to the defence of the realm to make sure that we can produce steel of an appropriate sort. My right honourable friend is fully aware of that, and that is why he has encouraged all departments to look to their procurement of steel and why, where possible, certain adjustments have been made to allow them to take other factors into account in procurement. The noble Lord, Lord Fox, was rather dismissive of the tables we have produced to encourage other departments to buy British steel, but they are important. I can assure the noble Lord that, wherever possible within the rules, we will certainly use British steel for defence projects, but not necessarily steel produced by this company, if it does not produce the right sort of steel.

My Lords, the Minister mentioned Scunthorpe and also Teesside, which was the cradle of the Industrial Revolution. Have the Government worked out the implications for our much-heralded industrial strategy, given that we have taken quite a knock with a number of manufacturing jobs going, Nissan’s announcement about its production and Honda closing its production in 2021? The good news story is Hitachi in County Durham building the Azuma trains that will be required for HS3 as well as HS2. Will the Government look favourably on retraining any workers who in the long term lose their jobs with British Steel, so that they can participate in other manufacturing roles in the north?

I shall not comment on my noble friend’s assertion that Teesside is the cradle of the Industrial Revolution because I think that one or two other areas would also make that claim, and I do not want to have to be the judge on that. She is however right to point out that the loss of manufacturing jobs in a particular area is a very painful process, and we want to offer as much help as we can to those who are affected. She is right to take an optimistic approach in talking about developments in Durham with Hitachi, for example, where new jobs are on offer and there are therefore possibilities for retraining people from Teesside. It is important to remember that while we are looking at a risk to those jobs—at this stage it is only a risk, because good news could emerge in due course—at the same time, we have to look at the unemployment figures. Unemployment continues to decline very steadily and employment continues to rise.

My Lords, can the Minister help me understand the situation so as to better understand the appropriate response? Is he describing a company that in a sense is unlikely to be viable in any normalised market condition or a company that is in fact both efficient, producing high-quality goods with appropriate costs, but also suddenly in trouble because its primary European customers, afraid of the consequences of a no-deal Brexit with tariffs and disruptive supply chains, have had to source their product from other companies within the 27? If that is so, it seems that the burden falls on government, and it also means that we will start to see a chain of similar problems in other companies that are dependent on exports to the European Union 27.

No, I am not describing a company that has terminal problems. I think that it has a future, and it is the official receiver’s job to explore that and to find something viable that he can sell on. British Steel is producing fine products but it has been having problems. The level of the pound has increased the cost of its imports and, the company believes, the uncertainty over Brexit has also caused problems. However, I do not think that that is necessarily terminal for the company. It is a good company that produces fine products, and it is for the official receiver to find the right solution.

My Lords, can the Minister give an assurance that government procurement provides a level playing field for steel produced within the United Kingdom?