APPENDIX 2
Memorandum submitted by Sheffield Forgemasters
Limited
I last gave evidence to the Select Committee on 7
February 2000 as part of the Engineering Employers Federation
delegation and at that point I outlined the background on the
Sheffield Forgemasters Group, what we did, and the impact of the
exchange rate bearing in mind we export over 60 per cent of what
we make and of this 60 per cent over half is into Europe.
I enclose three exhibits which graphically illustrate
the consequences of the £/euro relationship. At the last
Select Committee I was asked how well we were faring in competing
with Eastern Europe and I indicated that we were holding them
off. Regrettably, with the pound still above the 3.20 DM level
we are fighting a losing battle.
The effect has been particularly acute in our
heavy foundry where it is difficult to automate the process and
I fear that a further tranche of redundancies is imminent. We
have been more successful in other areas of our plant, such as
roll manufacturing for steel mills. Here we have invested over
£3 million of capital which will increase our productivity.
The problem we now have is that our American
owners, who bought the business in 1998 believing that it was
a door into Europe with a relatively favourable rate of exchange,
are now becoming disillusioned. They have seen virtually no return
since the purchase and currently we are not in a position even
to pay the interest payments on our intercompany loan. They are
particularly disturbed by the continuing strength of sterling
as they see it and by what they see as a lack of Government interest
in manufacturing.
On his last visit to the UK the Group CEO indicated
that he is coming under increased pressure from his US shareholders
over his investment in the UK and whether or not the UK business
should be restructured to reduce the cash drain. The US shareholders
are encouraging the Group to look towards Eastern Europe as they
perceive a better industrial climate.
I have a grave concern that the environment
levy may prove to be a further nail in our coffin. I would hasten
to add that I am totally supportive of reducing the global warming
effect but I would ask the Government to recognise that industry
only contributes a minor part of the problem. The voter is the
biggest culprit, we all leave lights on, boil full kettles of
water and drive motor cars etc, and I feel that industry represent
a soft and politically acceptable target without really solving
the problem.
As to the levy itself, it is neither fair nor
easy to understand and as such fails even as a tax let alone a
levy. It is also perverse in the case of steel as it encourages
steel to be bought from low cost non-signatories of the Kyoto
Agreement who pollute more than the UK steel industry.
Even within the tax, steel made by oxygen steel
making which uses coal and iron ore, depleting natural resources
and generating more CO2 than steel made by recycling scrap, a
waste product, pays less levy!
If we do wish industry to get better I would
request that this is done by incentives rather than by a thinly
disguised tax. Secondly, bearing in mind the current problems
with the strength of sterling against a weak euro, even if we
can't ditch the levy I would at least ask for a moratorium on
implementing the levy until economic conditions are better. Unless
such a respite can be obtained I fear it could hasten the demise
of more United Kingdom manufacturing and result in the loss of
assets which will never be replaced.
6 November 2000
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