Examination of Witnesses (Questions 120
- 139)
WEDNESDAY 14 FEBRUARY 2001
SIR BRIAN
MOFFAT, MR
ALLAN JOHNSTON
AND MR
DAVID JACKSON
120. Could it be said that because you are only
having a partial closure of Llanwern that, in effect, rules out
the possibility of the unions, if they still wanted to, acquiring
the plant?
(Sir Brian Moffat) It is a question of if the unions
acquired Llanwern, and this is probably a reason why it has not
been brought forward now they better understand the situation,
even if they were financially able to do that, and by that I mean
actually maintain it in operational terms, the fact is they would
prejudice other plants. There is too much capacity, that is our
problem. We have got a diminishing market size and as our efficiency
improves the market has not improved in size in the UK with it,
such that our exports are now in flat products approaching 50
per cent of what we make.
121. Your view is that no-one else could make
any money out of it. Is it up to you to decide that?
(Sir Brian Moffat) Yes, it is, in the sense that these—
122. Somebody might be more efficient than you.
Is that what you are worried about, competition?
(Sir Brian Moffat) I have made it quite clear, and
it is one area where we are totally in agreement with the unions,
I am not complaining about the efficiency or productivity of our
workforce or the co-operation. Unfortunately, 50 per cent of what
we make has to be exported because the UK manufacturing base is
getting smaller progressively. Ten years ago it was only 30 per
cent that had to be exported. It was exported in those days to
a market which was not as competitive as it is now because we
export mainly to Northern Europe and Northern Europe is now being
penetrated from the East from the former Soviet Union countries
with cheap material, probably below cost. We cannot prove that
but that is probably the situation. Therefore, prices are very,
very competitive. When you add to that the fact that we have to
spend something like £35 a tonne extra to get the material
into that market, it is not feasible with normal commodity business
to make money in Northern Europe, our nearest market.
Mr Laxton
123. Can I just come back to the issue of consultation
because we have heard this before for example with the closure,
or partial closure, of Luton by General Motors who said pretty
much the same as you are saying, I suspect, that "oh, yes,
we have had lots of consultation discussions with our workforce
and we have set the general scene" but then the bombshell
is dropped and there is then what I would term appropriate consultation
beyond that date. Is that not the same here, that you may be having
general discussions with the trade unions and the people you employ
about the difficulties in the market but not in terms of dropping
the bombshell of closures and then having dropped the bombshell
you are in the business of starting after that event the whole
process of detailed consultation? Is that not the sort of scenario
that has been brought into play?
(Sir Brian Moffat) No, it is not. I cannot talk about
Vauxhall. They are a customer of ours but I cannot talk about
the detailed consultative process. I am sure it is a good one.
We warned our workforce that we could not carry on losing money
at the rate of £1 million a day in the UK, as we were, without
prejudicing the whole infrastructure of the company. The unfortunate
situation is when it crystallises into a decision which affects
a particular plant inevitably it is a shock. It is inevitable.
Chairman
124. We have had reports that there were offers
of assistance by Mr Byers and Mr Morgan of a rates holiday, training
grants, site improvement and rebates on the Climate Change Levy
beyond those already on offer. Can you tell us about these offers
that you were made? Were they substantial enough to make you think
twice?
(Sir Brian Moffat) I have not had any offers made
to me. I have had offers in general terms of "if we could
help would it be likely to change your decision?" and my
answer has been that against the State Aid Code which Government
is constrained by, just like we are constrained by it, I do not
see what help Government can make that can detract from the problem
that we have got, other than by direct subsidy which would break
the State Aid Code. What we would welcome, and indeed the Minister
wrote to me yesterday about this, is working with Government and
with the trade unions for retraining schemes and inward investment
in the communities affected to try to obviate the difficulties
which inevitably are going to be caused. We have a company with
a budget to work alongside Government and local government and
Development Agencies to try to kick start economies in those areas
most affected.
125. Did you seek any help from the DTI or the
Treasury or the Welsh administration which they were not able
to give you?
(Sir Brian Moffat) I have said all the way along,
and talked with them, that we would welcome initiatives in this
training and retraining and job creation field. The Government
are now saying they will work with us. They have always said they
will work with us.
126. I am sorry, I do not think you are quite
getting what I am trying to say, maybe I am not making myself
very clear. What I was meaning was did you go to them and say
"look, if you could give us this assistance we could produce
steel at a lower price such that it would be possible to get back
into some of the markets which we have lost"? Have you approached
Government in that way at all?
(Sir Brian Moffat) We have talked about it but I have
not directly asked for it because it is illegal, illegal subsidies.
127. I am sorry but there are sometimes ways
of providing assistance, for example, of an infrastrutural kind
which would not be illegal. Surely you have a responsibility to
test that? There are enough civil servants in the DTI to work
out these things.
(Sir Brian Moffat) Excuse me, on things like rate
reductions, we have been asking for rate reductions for seven
years and we have only just been getting them recently. That is
our right. It is not a privilege, it is a legal right to appeal
against rates if you think you are over-rated. We have been doing
that consistently over the years. I do not know of any other reductions
we can get in Government taxes.
128. The Climate Change Levy was one that might
have been a possibility?
(Sir Brian Moffat) We negotiated, and indeed I signed
the agreement on the Climate Change Levy, to bring it down from
a notional £150 million a year, and protested at the lack
of competitiveness that would bring, to just over £8 million.
That £8 million a year is more than the whole German steel
industry pays. On top of that, exporting from this country through
every port costs on average 30 per cent more than it costs to
export from the continent into this country. The transportation
costs out of this country are double that which you have to pay
to import steel into this country from the continent. People,
through various lobbies, ourselves included, the associations,
make points to Government like other industries have.
129. It has been suggested you did not keep
the DTI and the Ministers and the Welsh Assembly informed over
the two months immediately prior to the announcement. Is that
the case?
(Sir Brian Moffat) No, it is not the case. I had three
meetings with the DTI, two meetings with the Secretary of State
for Wales, and in one of those meetings the First Minister of
the Welsh Assembly was also present.
130. Why I am asking is because the FT
on 3 February quoted you as saying that leaks in the past had
persuaded you not to keep them informed.
(Sir Brian Moffat) What the Government wanted me to
do was explain in detail how each plant would be affected at a
time before we actually formulated and decided the plan. As soon
as that plan was completed, literally within 24 hours, we informed
our workforce. I said at the time although I could indicate the
areas, and indeed did so at the beginning of December, likely
to be affected—for example, Wales had to be, because it
was going to be in strip in one form or another, and also the
North East was a likely area, and this was not news because our
people knew of the vulnerability of the areas—I could not
specify plant by plant or department by department until we were
in a position to do so. We felt, and I still feel, we were first
obligated to tell the people affected, that is our first responsibility,
coincident with Government being informed and the trade union
leaders at national level being informed, and that happened.
131. If I can get it right then, what you are
saying is that you had no faith—and it might well require
faith more than anything else—in the ability of Government
to make sufficient assistance available to you to keep any of
the potential candidates for closure open, and therefore there
was no point talking to Government because they could not do anything
material for you to keep these plants open?
(Sir Brian Moffat) The Secretary of State for Trade
& Industry agreed that to try to subsidise directly the losses
we were making would be state aids and he would not be allowed
to do that, and I do not demur from that decision. He is totally
correct.
Mr Baldry
132. Sir Brian, can I put it on the record that
I am an adviser to the British Constructional Steelwork Association,
who are amongst your customers and use some of your steel. I do
not think anyone suspects you or the board of Corus have acted
capriciously, but there are a few things we do not entirely understand.
Last year on a monthly basis Corus were shedding jobs and running
down capacity, and then in the late summer, around August, September,
you seemed to be committed to the relining of the No 3 furnace
at Llanwern at a cost of some £35 million, and there seemed
to be some clear indication you were going to do that, and then
come December you announced that you were going to dismiss the
chief executives and announced impending cuts. It is not entirely
clear what happened in the last quarter of last year to make things
so much worse. Was it a fall in the share price? You have explained
to the Committee about losing £1 million a day but if that
was happening, that was happening throughout the whole of last
year, why were you at one stage during last year looking as though
you were going to reline the furnace at Llanwern and then, almost
within a couple of months, seeming to change your mind on that?
(Sir Brian Moffat) Steel prices last year began the
year quite strongly, and in the first quarter peaked out—one
of the shortest cycles we had seen, it only lasted about 15 to
18 months—and then rapidly started to deteriorate. The announcement
of the possible reline of the furnace at Llanwern, which was due
for a relining in September of this year, was made, I think, round
about August—I cannot be precise but I can look that up—that
we would take steps to order up some of the longer term materials
for that reline but we would review the situation on an on-going
basis before finally making up our mind to reline the furnace,
and that was very carefully worded. Unfortunately, the commercial
situation deteriorated very rapidly in price terms after that,
which accentuated the losses, but on top of that the UK manufacturing
base with the number of closures which you will remember registered
last year went very, very rapidly from bad to worse. That scene
has not stopped. Indeed although we hear, for example, that Nissan
will continue to make the new model of the Micra up in the North
East, and we all welcome that because of the job situation in
the North East, the downside as far as we are concerned, and we
are a major supplier there, is that they will source their materials
and component parts off-shore because part of the agreement is
that they reduce their costs by 30 per cent, and the only way
they can do that is using the currency advantage to that end and
source offshore and we lose more business.
133. Can I put a couple of comments to you really
in fairness to you so you can respond to them? The Secretary of
State accused you of short-termism, indeed I will quote the Secretary
of State, he said, "Corus needs to be aware that it will
stand condemned of short-termism at its worst if its response
is to close plants with the loss of thousands of jobs .... Corus
should not take short-term decisions over the next few days but
look to the long-term." How do you respond to that charge?
(Sir Brian Moffat) I think we are trying to look to
the long-term, because if we carry on the way we are we will prejudice
totally the infrastructure of the company and the 22,000 people
that will still work in the company after these closures. As I
said before, in 1989 exports in flat products alone from the company
were 1.6 million tonnes, today they are 2.6 million tonnes. We
actually make that out of a configuration which is 20 per cent
less in size than it was in 1989, because Ravenscraig is no longer
there, and indeed out of the four plants that stand today—Ravenscraig
was the fifth—we make more steel out of the four than we
did with the five. Productivity is not a problem; our productivity
has been excellent. But as our exports have increased by 1 million
tonnes, the UK base has decreased by 700,000 tonnes in the same
period. The UK infrastructure for steel-consuming goods has got
less and less and less. Indeed I was looking at figures earlier
today and more steel is consumed in finished imported goods into
this country than in steel, whether it is imported or manufactured
in this country. That is how big the turn-round has been.
134. I think there are some BCSA members in
Wales who were pretty hacked-off that the Millennium Stadium was
not made out of Welsh steel but Italian steel, I think. To what
extent have the city and the analysts had an impact on this? There
might be those who argue that these are reductions which should
have been made earlier, maybe in the 1990s, when you were chief
executive of British Steel. To what extent is this a rationalisation
which has simply been brought about by the city?
(Sir Brian Moffat) The rationalisation has not been
brought about by the city, the rationalisation has been brought
about by the market. This is not a short-term problem, as I have
explained, it is a fundamentally long-term problem, and indeed
I have asked the Secretary of State for Trade & Industry how
industry can work with Government to try to create further investment
in manufacturing industry, or a climate for further investment
in manufacturing industry, in this country, otherwise the situation
looks pretty bleak. We were talking with the trade unions earlier
today and if you go round many of our customers in the UK you
will find plant that has been there for 30 years, it is not new,
and yet if you go to places like Hungary and Czechoslovakia these
days and look at the plant there, the competition and the ability
of the people as well, because they are not backward by any means,
it is fearsome competition and you can start to understand, therefore,
the pressures on the scene and the fact that people in distant
parts are manufacturing goods and exporting them to this country
very successfully. The days have gone when steel was processed
into manufacturing goods and in huge quantities exported from
this country very successfully.
Helen Southworth
135. Can I ask whose responsibility it is if
specific British industries have not invested in the kind of equipment
that their companies needed in order to remain competitive?
(Sir Brian Moffat) I think it is a shared responsibility.
I do not think it is specific.
136. Shared by whom?
(Sir Brian Moffat) It is about having the right economy
and the right background situation. It is having the facility
and the ability to raise money to invest. It is about the skills
and the technology that you can bring to bear to create from the
tools and the manufactured raw materials the products which are
attractive for people to buy.
137. Do you think Corus has any responsibility
in that?
(Sir Brian Moffat) Of course I do. We would like to
work with Government to try to help kick start the infrastructure
situation here.
138. Perhaps you can explain why Corus had no
plans for investing in new plant or equipment in Britain when
you made your restructuring announcement on 1 February?
(Sir Brian Moffat) That is not true.
139. Perhaps you could give us some details
then?
(Sir Brian Moffat) We announced yesterday investment
in our mills in the North East, in Humberside and in the Sheffield
area. We are spending over £300 million this year.
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