The Government welcomes the Committee's report and
shares its concern about the future of the UK steel industry.
The report is timely in the light of recent restructuring and
consequent job losses within the UK steel industry and particularly
On 3 May 2001 Corus confirmed its intention to proceed
with further restructuring of the UK business and associated job
cuts initially announced in February. The job losses are in addition
to those announced in the previous year. On the same day the Government
announced a package of support measures to help the individuals
and communities affected. A similar announcement was made in the
National Assembly for Wales. In total the two packages amount
to around £135 million.
The Government has the following comments on the
Committee's conclusions and recommendations:
State of the Steel Industry
(1) The symptoms of the state of the UK steel
industry are all too apparent. Some companies are trading at a
loss. Levels of capital investment are reported to be disturbingly
low. The workforce is shrinking. There is nothing to be gained
from papering over the problems facing the UK steel industry,
nor their wider significance for the UK manufacturing base (paragraph
The UK steel industry has undertaken significant
re-structuring in the last year, particularly within Corus, and
is the most productive steel industry, in terms of output per
person against comparable European countries, overtaking Germany
in 1999. It is unfortunate that the industry has not been able
to capitalise on this achievement. It does however have to operate
in a global market against fierce international competition.
We believe that a strong manufacturing sector is
a vital part of the British economy and steel continues to play
an important role. The manufacturing sector contributes a fifth
of our national income (nearly £150 billion per year) and
nearly two thirds of our exports, employs nearly 4 million people
and is a major source of growth in productivity, exports and research
Given the impact of increasing globalisation that
there are bound to be implications for us in the United Kingdom
owing to the slowdown in the world economy, especially in the
United States. However, we should not overstate our difficulties.
Most forecasters expect manufacturing output to grow this year.
The medium-term prospects appear good with productivity having
grown at nearly 5 per cent. Exports are also growing, with manufacturing
exports up by nearly 10 per cent in the last year. We hope that
the UK steel industry's prospects will also improve this year
No country can ever insulate itself from world economic
events, but it is because of the decisive action that we have
taken - introducing tough fiscal rules, reducing the national
debt, making the Bank of England independent and delivering the
lowest inflation for 30 years - that British economic policy is
much better placed than it has ever been in the past.
Erosion Home Market and Euro
(2) UK steel producers have seen their share of
a declining home market steadily eroded: a trend which began before
the recent difficulties caused by the weakness of the euro. Despite
high productivity and a full product range, UK producers find
themselves increasingly unable to compete with imported steel
in simple price terms in the UK domestic market. The weakness
of the euro has been one of the biggest obstacles confronting
the UK steel industry in the short term. The euro has however
strengthened in recent months (paragraphs 6, 7 and 10).
The Government fully understands the difficulties
that the weakness of the euro has caused, particularly for the
steel sector in terms of the impact on exports and imports. But
the Government's objective for the exchange rate remains a stable
and competitive pound in the medium term. The best contribution
the Government can make to achieving this objective is to maintain
sound public finances and low inflation. There is no short-term
exchange rate target competing with the Government's inflation
target. Any short-term attempt to manipulate the exchange rate,
overtly or covertly, would put at risk both the inflation target
and - as in the late 1980s - wider economic stability, which is
what matters most for UK business.
Sterling's easing back from last year's peak against
the euro is welcome news.
(3) We await with interest further announcements
from Corus regarding the remaining £282 million investment.
We urge Ministers and officials to go beyond the role of dispassionate
observers and compilers of scorecards and, within the constraints
of the European Commission's increasingly rigid interpretation
of state aid and competition rules, to bring forward and implement
measures to encourage and facilitate capital investment in key
manufacturing sectors, including steel (paragraphs 13 and 15).
The economic stability and low inflation we have
achieved provide an environment in which manufacturing industry
can invest and plan ahead with confidence.
The Government also notes the Committee's concerns
about the European Commission's interpretation of the state aid
and competition rules. The ending of the ECSC Treaty will provide
an opportunity to influence the European Commission's thinking
in this area and we hope to see proposals on a new steel aid code
in the near future. The Government would however not wish to see
a significant liberalisation of the current Steel Aid Code which
plays an important role in promoting a level playing field for
the industry. The Government remains willing to work with the
steel industry on proposals for investment in R&D and environmental
protection, which are eligible, subject to meeting certain criteria,
for public funding under the current steel aid code.
(4) The logistic costs to UK industry of exporting
deserve further examination, in the context of their impact on
the competitiveness of UK exporters (paragraph 16).
Competition with European hauliers is an issue that
has been widely discussed, particularly in relation to the road
haulage industry and some commentators have noted that other EU
countries have lower fuel duties than those in the UK. Individual
countries' tax policies are, of course, entirely a matter for
them (beyond certain minimum rates set at EU level). However,
it should be remembered that hauliers in other countries will
often have to pay other taxes and charges that UK hauliers do
not, such as road tolls, and higher levels of income or corporation
As the Committee concluded in your recent enquiry
into the impact of trade and industry of motor fuel taxation,
"[The TIC has] received no conclusive evidence to show that
the current level of motor fuel taxation has rendered UK business
as a whole less competitive... We [the TIC] remain to be convinced
that any decline in UK competitiveness in recent times can be
attributed to any significant degree to high fuel taxation levels".
The DTLR is not aware of differences in port costs
of the scale and extent reported to the Committee. It is the Government's
perception, based on the views of shipping companies and shippers
who regularly use UK and European ports, that port costs in the
UK are generally similar to those in continental Europe, and UK
ports offer a competitive quality of service. The DTLR would be
happy to consider evidence of excessive charges in UK ports. As
stated in Modern Ports: UK Policy - it is government policy that
users should pay the full costs of port and maritime infrastructure,
and supports the EC's policy to make financing of ports more transparent.
(5) We recommend a Ministerial review of DTI's
voting on anti-dumping cases, to ensure that the department is
not pursuing a fixed departmental line at odds with national interests
We recommend a Ministerial review of DTI's voting
on anti-dumping cases, to ensure that the department is not pursuing
a fixed departmental line at odds with national interests.
(6)The Government treats proposals for anti-dumping
measures on their merits. When considering proposals from the
Commission for measures the Department will consult with representatives
of all interested parties, including manufacturers, importers,
users, consumers and other government departments. Decisions on
voting will be taken on the basis of what is legally permissible
and economically justifiable.
It is true that the UK has opposed the introduction
of a number of anti-dumping and anti-subsidy (countervailing)
measures on steel products, but there have also been a number
of instances where the UK has abstained.
The UK position is decided by Government ministers
where proposals are contentious or raise issues of conflicting
national interests. There is therefore no need for a ministerial
review of DTI's voting on anti-dumping cases.
Trade with USA
(7) None of this should discourage the Government
from mounting at least as vigorous a defence of principles of
free trade and transparency in dealing with the USA as is demonstrated
within the relative privacy of the EU Anti-Dumping Committee,
nor from lending its full weight within the EU to bringing US
anti-dumping provisions in line with international norms.
The UK plays a full and active role both within the
EU, and bilaterally with the US to ensure that instances of non-compliance
with WTO rules which cause injury to the UK's interests are tackled
swiftly and effectively. A good example of this was the successful
action taken by the EU in the WTO against unjustified countervailing
duties applied by the US on imports of lead bismuth steel products
from the UK. The UK supports the EU's continued efforts to lift
the remaining unjustified US countervailing duties on steel and
other products. It is also essential, particularly in the case
of anti-dumping investigations, that the industry is vigorous
in promoting and defending their interests.
The Government would welcome the opportunity to discuss
anti-dumping in a new Round of trade negotiations especially if
that were to lead to changes in the Anti-Dumping Agreement which
ensured a more consistent implementation of the anti-dumping instrument
by WTO members. In the meantime, the UK, via the European Commission,
will continue to participate fully in the WTO's ad hoc groups
which provide a forum for discussing and debating the specifics
of individual Members anti-dumping regimes.
Energy Costs: Electricity
(8) Ministers must redouble their efforts to bring
the industrial price of electricity in the UK to below the EU
average, and together with Ofgem identify any structural failures
which account for the dramatically higher prices for electricity
paid by UK steel makers compared to their French, German and Benelux
competitors (paragraph 24).
With the introduction of NETA on 27th March, the
Government's reform programme for the electricity sector as set
out in the 1998 energy White Paper is largely complete. Based
on prices in forward markets wholesale prices in the coming year
could be some 30% lower in real terms than in 1998 as a result
of NETA and the other reforms including divestment of coal plant
by the major generators.
The wholesale price comprises a large part of the
total cost of electricity for larger industrial consumers. Other
things being equal, pre-tax prices to these consumers during the
year from April 2001 should therefore be significantly lower in
real terms than in 1998.
Actual statistical data for prices after April 2001
is not yet available. However, there is other evidence that these
reductions are taking place. For example, in March the Major Energy
Users Council announced that wholesale prices in annual contracts
just signed by some industrial consumers were down 10-15% on the
previous year and the Chairman on the MEUC, Hugh Conway, said
that "when John Battle announced his review of the Pool three
years ago, he said he expected prices would be driven down by
at least 10%. Some of our members have experienced 25% reductions
over two years".
Energy Costs: Gas
(9) We welcome the referral to the European Commission
of the recent sharp rise in the price of gas to UK industrial
consumers to establish if it is a genuine market-driven phenomenon
and not the result of anti-competitive practices, while regretting
that such action was not taken earlier (paragraph 26).
The Department notes the Committee's welcome of its
referral to the European Commission of the operation of the interconnector.
The Government took this initiative because it had
been concerned that the operation of the interconnector does not
always appear to have reflected market fundamentals: for example,
there is a history of spare capacity; there are occasionally perverse
flows, and the interconnector's operation has not been transparent.
The unexpected switch in interconnector flows on 15 January, from
import to export, with harmful effects in the gas and electricity
markets, was invoked by the Government in making the case to the
Commission for an inquiry. The Commission announced the inquiry
just over two weeks later, on 1 February.
The major reason for the sharp increase in wholesale
gas prices has been arbitrage across the interconnector with high
oil-related gas prices in Europe. The then Minister for Energy
and Competitiveness in Europe has given evidence to the Committee
(14 February 2001, see HC 269-i) on the Government's three-point
strategy for addressing this: namely, to press for greater liberalisation
and competition in the European market; to improve the functioning
of the GB market; and to take action against anti-competitive
behaviour. The Department continues to pursue this strategy. The
new draft Gas Directive, published in March, is a very positive
step forward, although the Government was disappointed that the
Stockholm Summit in March did not set a date for liberalisation
of the whole market. DTI and Ofgem have been looking at ways of
improving information flows, as we believe that a well informed
market is an efficient market; there has been progress (for example
details of flows across the interconnector are now published just
one day in arrears), with more to come. Meanwhile DTI, OFT and
Ofgem continue to monitor the market closely. If there is any
sign of anti-competitive behaviour, both Ofgem and OFT have significant
powers to take action under the Competition Act 1998.
Energy Costs: Climate Change Levy
(10)As the introduction of the Climate Change
Levy approaches, we recommend that the DTI commit itself to assist
the principal sectors affected by the Levy to produce objective
reports on its impact after the first year, including progress
made towards energy efficiency and emissions reductions targets
made by those sectors eligible for a rebate; the distribution
of the associated energy efficiency package; and the take-up by
sector of enhanced capital allowances for energy saving investments.
We would hope that the impact of the Climate Change Levy will
be less damaging than the steel and other manufacturing sectors
have suggested to us in evidence over the past 18 months; and
that the concerns we have expressed in past reports on the effects
on recycling and on the price of industrial gases will eventually
find some positive response (paragraph 29).
As with all taxes, the Government will keep the operation
of the levy under review as part of the normal budget process.
It shares the Committee's view of the importance of effective
monitoring of specific elements of the levy, and is making arrangements
to do this, as set out below.
There is provision in the climate change agreements
to review the progress of the participating sectors, which are
working towards delivery of energy saving targets in order to
maintain their entitlement to the 80% discount on the levy. The
Agreements provide that, in early 2002, DEFRA and the sectors
will review operation of the agreements and to check progress
towards the establishment of monitoring and reporting systems.
The aim will be to prepare the way for the subsequent formal reporting
of the sectors' performance against their targets. The initial
intermediate 'milestone' target period in the agreements runs
for two years, ending on 31 March 2003. As part of the formal
assessment process, audited data for a twelve month period (ending
within the period 1 October - 31 December 2002) must be reported
to DEFRA. The data must be forwarded to DEFRA by the end of January
2003 at the latest. DEFRA will then assess performance against
targets and re-certify sectors for discount entitlement, as appropriate.
Sectors are expected to make their own arrangements for regular
internal monitoring and this information may help to give an earlier
indication, during 2002, of the progress being made towards the
targets in the agreements.
Arrangements are also being established to monitor
the take-up of the enhanced capital allowances scheme for energy-saving
investments. It is expected that this will cover areas such as
the category of product, through sampling, questionnaires and
close liaison with the manufacturers.
In addition, the Carbon Trust has now been established
and is developing its business plan. In the short term, the Carbon
Trust will concentrate on helping business save energy and money.
Looking to the longer term, it will develop the UK's capacity
to meet the problems of climate change, considering not only commercial
and technological factors but wider socio-economic factors which
hinder our move towards a low carbon economy. The Carbon Trust
will work with a wide range of low carbon stakeholders, including
businesses, NGOs, Trade Unions, Government and the research community.
The business plan will be subject to approval by the DEFRA who
will work closely with the Trust and monitor their activities
Review of Redundancy Law and Practice
(11)In our recent Report on Vehicle Manufacturing
in the UK, we welcomed the proposed terms of reference of the
review of redundancy law and practice announced on 13 December
2000, subject to it going beyond "fine-tuning" of the
law and practice of redundancy, and to it ruling nothing out,
including primary legislation. We also called for the review to
be conducted transparently and swiftly, and for the early publication
of a date for the conclusion of the review. The Government's review
of redundancy law and practice announced following the Vauxhall
decision to bring car manufacture at Luton to an end must also
explicitly cover the lessons of the recent Corus announcements
The Government announced on 18 January 2001 that
it was to review UK arrangements affecting collective redundancies,
to consider whether the current laws were working and whether
more should be done to promote effective consultation with employees.
Since the Review was begun, an agreement has been reached in the
EU Council of Ministers on the proposed directive establishing
a general framework for informing and consulting employees. This
has a major bearing on the issues covered by the Review, and the
Government now needs to take account of this. The Government will
carry out a full consultation on the implementation in the UK
of the Information and Consultation directive (which still has
to be considered by the European Parliament before it can be adopted
in Brussels). The Review will be taken forward through that consultation.
The evidence gathered so far during the Review will inform the
consultation and the subsequent implementation of the directive.
EU Enlargement and Steel
(12) If the steel industries in accession states
are granted excessively long or wide derogations from EU state
aid and environmental rules, a further element of unfair competition
would be introduced into an already imperfect market. It is disappointing
that so little progress seems to have been made over such a long
period in obliging the accession states to go beyond mere expressions
of intent to reform their steel industries. The Government must
continue to exert its influence on the negotiations with the accession
states to ensure that a genuine programme of restructuring of
the protected steel industries of central and eastern Europe has
begun prior to accession to the EU, and that any derogations granted
are short and limited in scope. It is improbable that accession
to the EU of any state would be ratified which had not put its
act in order on its steel industry. The same applies to countries
further east which may be contemplating application for membership
of the EU (paragraphs 36 and 37).
The Government agrees with the Committee's comments
on the potential for derogations or transitional periods to distort
the single market. The avoidance of such distortions is a central
issue in the ongoing enlargement negotiations on the environment
acquis, and we are encouraged that many requests from candidates
for transitional periods on key parts of the environment acquis
have recently been withdrawn or scaled down. It remains, of course,
a fundamental principle of the negotiations that transitional
periods are exceptional, limited in time and scope and accompanied
by a plan with clearly defined stages for the application of the
The State Aids acquis is part of the competition
policy chapter and is due to be discussed under the forthcoming
Belgian Presidency. It is too early to say what the outcome will
be, but it is clear that the few requests which have been made
for transitional periods are likely to receive a sceptical response
and that the existing track records of enforcement of their current
state aids commitments by the candidates are likely to be taken
The Government fully supports the Commission's continuing
efforts to ensure that real restructuring takes place in the steel
industries of the candidates as soon as possible. This has included
the submission to the Commission of detailed restructuring plans.
We agree with the Committee's view that we should restrict as
far as possible overcapacity and unfair competition in what is,
as the Committee says, an imperfect market. On the practical side,
DTI has been involved in a twinning project in Poland which seeks
to assist with the consequences of steel (and coal) restructuring.
(13 We regret that Corus felt unable to take Ministers
more fully into their confidence in December while they were preparing
the proposals announced on 1 February. We are not however convinced
that there was much that Ministers could have done to help the
process (paragraph 46).
The Government, in particular the Department of Trade
and Industry, has regular contact with Corus and is therefore
well aware of the company's concerns about such issues as the
Climate Change Levy, energy prices etc. The interests of the company
and the industry have been represented in inter-departmental discussions
about such matters as the Climate Change Levy.
However, the company has been reluctant to have more
strategic level discussions about their future plans. This has
made it very difficult for Government to consider how it might
help the company to capitalise on opportunities or avoid difficulties
if it is unaware of its strategic direction.
Corus: Remediation of Contaminated Sites
(14) A clear statement by Government of the legal
and financial framework for remediation of steel-making sites,
including the powers to enforce clean-up of a vacated site, would
be helpful. We would also welcome the prompt publication by Corus
of plans for their evacuation of redundant sites, and a proposed
timetable for their remediation, so that they can be put to other
uses as soon as possible, in consultation with the regional and
local authorities (paragraph 51).
The potential legal and financial obligations for
site-remediation vary according to the nature of any contamination
of the site, its location and when it becomes vacant. In part
this variation reflects deliberate policy decisions, but in other
respects it also reflects the transitional situation with respect
to the implementation of new statutory requirements.
Part IIA of the Environmental Protection Act 1990
gives local authorities and the Environment Agency duties to identify
and ensure the remediation of any land meeting a statutory definition
of "contaminated land". This regime is intended to deal
with risks arising from contamination, assessed on the basis of
the current use and circumstances of the land. Potentially, it
applies to sites that are in operational industrial use, that
are derelict or that have been redeveloped for new uses; the basis
for risk assessment on these different types of site may well
be different, however, as the pattern of potential risks is to
a large extent dictated by the particular use of the land.
Under Part IIA, liability for any necessary remediation
falls, in the first instance, on any person who has "caused
or knowingly permitted [a contaminant] to be in, on or under the
land". If no such person can be found, liability passes to
the current owner or occupier of the land, subject to limitations
concerning water pollution cases.
The provisions of Part IIA came into force in England
in April 2000 and in Scotland and Wales in July 2001.
In future, the closure of an industrial operation
may trigger wider legal requirements for site remediation. The
system of Integrated Pollution Prevention and Control (IPPC),
which is being brought into effect on a phased basis over seven
years, will require the operator of any permitted installation
to carry out a site investigation and restore it to a "satisfactory
state" when the installation is closed. This may involve
remediation not only to ensure compliance with the standards in
the Part IIA regime, but also to remove any contamination that
has been caused during the period of operation of the installation.
Preparing a site for redevelopment may involve more
extensive remediation of chemical contamination than can be enforced
under either the Part IIA regime or IPPC. This is because a new
site use may be more susceptible to contamination risks. In addition,
there may be a need for other site-clearance and preparation work
that is not related to chemical contamination. In some cases,
former industrial sites are cleared and cleaned-up by the companies
concerned before they are sold on for redevelopment. In other
cases, this work may be carried out by a new owner as part of
the redevelopment; the potential cost of this work will generally
be offset against the purchase price paid for the land by the
Although it is the responsibility of any developer
to ensure that the development is safe, local planning authorities
may impose specific conditions or other obligations relating to
site investigation and remediation as part of the planning approval
Corus: 1 February Cuts
(15) Nothing we heard from Sir Brian Moffat has
led us to believe that the cuts announced on 1 February are part
of a long-term strategy for the company's survival, nor that there
have been Government economic policies which could have produced
a different short-term outcome (paragraph 52).
We share the Committee's concerns about the apparent
lack of a long-term strategy for the company. The Government's
main aim must be to create an economic environment in which companies
such as Corus can thrive but the company itself must have a long
term plan to identify and take full advantage of opportunities
and respond to emerging threats. Government ministers have made
the point to Corus on more than one occasion that they believe
Corus has taken a short-term and pessimistic view of prospects
for manufacturing in the UK.
Corus: Workington and Long Rail
(16) Whether a good thing or not, the decision
by Railtrack to seek longer rolled lengths of rail was scarcely
a bolt from the blue. Bearing in mind the likely changes noted
in the mid-1990s in the probable demand for long rail, we are
surprised at the decision by British Steel not to invest in conversion
of the Workington plant to long rolled rail in the 1990s, when
it was making substantial profits. The purchase by Corus of the
Hayange long rail plant in France in 1999, in response to Railtrack's
express requirement for longer lengths of rolled rail, was the
consequence of that earlier misjudgement, resulting in the company
spending at least £83 million in acquiring a French plant
rather than investing £50 million in the Workington facility
(paragraphs 65 and 68).
Corus: Workington's Future
(17) We urge Corus to consider making Workington
the company centre of excellence in short rail and sleeper production
for the domestic and international market. We also urge Railtrack
to give proper weight to the advantages of having a viable domestic
rail producer close at hand when considering its future policy
on ordering (paragraph 71).
We note the Committee's comments and hope that Corus
and Railtrack will take appropriate action in this regard to ensure
that the UK remains an important centre for rail manufacture.
Where possible and appropriate the Government will support such
On the question of procurement, this is a commercial
matter for Railtrack. But the Government's Ten Year Plan for Transport,
by announcing £60 billion of funding for the improvement
and expansion of the rail network, will ensure that there is no
shortage of demand for steel rails. It must be in Railtrack's
own interest to have a stable source of supply in the UK - and
the post-Hatfield national recovery programme has underlined this.