In this speech to the House Lord Bilimoria notes the Steel Industry’s past and its modern connections. He notes the importance of steel in relation to the current UK economy as well as the future the industry and the wider manufacturing sector face with regard to Brexit and the negotiations with the EU. He stresses the importance of innovation and R&D to the future of manufacturing and the Steel Industry and notes the impact steel has throughout the UK economy and the need for UK steel to be able to competitive.

Steel Industry

25 April 2017

Question for Short Debate asked by Lord Mendelsohn:

To ask Her Majesty’s Government what steps they are taking to support the steel industry; and what role it will have in the Government’s industrial strategy.

Lord Bilimoria:

My Lords, when the Government published their steel pipeline and new procurement guidance, my university contemporary, the Business and Energy Secretary Greg Clark, said that the Government were,

“absolutely clear that we want to do all we can to support our world-class steel industry … This strategy will ensure we make the right investments in science, research, skills and infrastructure so that British industry wins contracts by producing the best goods and services”.

The Minister at the Cabinet Office, Ben Gummer, said:

“By updating our procurement approach on these major infrastructure projects we are creating a level playing field for UK steel”.

I thank the noble Lord, Lord Mendelsohn, for initiating this important debate. The history is there: employment in the steel industry was at 320,000 in 1971 and has now plummeted to 31,000. We export £4.7 billion-worth of steel from the UK and import £5 billion-worth—so there is a small trade deficit there—and 52% of UK steel exports are to the EU, while 69% of UK steel imports are from the EU. So the implications of Brexit for the industry are enormous, and there is uncertainty over future trade relationships with the EU, which will be absolutely crucial.

The All-Party Parliamentary Group for the Steel and Metal Related Industries produced a report this year in which it talked about an “existential crisis”, as the noble Lord, Lord Bhattacharyya, said. The APPG recognised,

“the vital role that the UK steel industry plays in the UK defence, aerospace, automotive industries, and supporting key infrastructure investments in the UK economy”.

It referred to an industrial strategy for steel and said:

“Our economy is unbalanced, tipped in favour of financial services and London and the South East. Essential to building an economy of purpose and resilience will be a renaissance for manufacturing, and for that steel is a key foundation industry”.

In the UK Steel Manifesto in 2016, it was noted again that there was a reduction of almost 60% in the number of people employed in steel since 1995, a 10% drop in UK steel production compared with 2014, and yet an increase of almost 400% in Chinese steel exports compared to 2009. It said:

“The result of the EU Referendum was a blow to the steel industry”,

in the UK. The disparity in energy costs, as mentioned by the noble Lords, Lord Mendelsohn and Lord Bhattacharyya, between the UK and our competitors is shackling the steel industry and preventing it being competitive. The Government must eliminate that price differential in the short term if we are to have a future. They must ensure that major procurement projects use British steel as much as possible, giving the industry confidence, and bring business rates for capital-intensive firms in line with their competitors by removing plant and machinery from the calculation. Does the Minister agree with that? There are barriers to this industry growing—cap ex, new investment and skills. Do we have the necessary skills and R&D, which I will come to later?

The British Government have been accused of disgraceful behaviour for labelling certain industries, including the struggling steel sector, as low-priority before detailed talks about leaving the EU. Can the Minister confirm that? I am a proud manufacturer of Cobra beer, with my joint venture partners, Molson Coors. We are one of the largest brewers in the world. We manufacture in Burton upon Trent in the largest brewery in Britain. Yet the 10 pillars of the Government’s industrial strategy make no mention of manufacturing. Manufacturing was 30% of our GDP in the 1970s; today it is 10%. India has a target to increase manufacturing from 16% to 25% of GDP. We have no such target. Will the Minister say why we do not?

As to the nature of the challenge, according to the Government’s industrial strategy:

“The UK has grown strongly in recent years—by over 14 per cent since 2010, second only to the United States”,

and yet the Government admit that,

“the UK needs to address the productivity gap with other leading countries”.

The Government proudly announce that they are increasing R&D investment by £2 billion a year. We invest 1.75% of our GDP in R&D and innovation, yet the United States and Germany invest 2.7% and 2.8%. If we were to just catch up with them we would have to invest £20 billion a year, not £2 billion. Does the Minister agree? The industrial strategy talks about the impact of universities. Once again, we underinvest in our universities as a proportion of GDP, compared to the OECD and EU average—forget America, which is way ahead of us—yet our universities are the best in the world. Just imagine if we invested the same amount. The industrial strategy mentions encouraging trade, yet the last Budget made no mention of the word “export”.

We know that the steel industry has halved and that China has quadrupled its production since 2000. Yet, as the noble Lord, Lord Bhattacharyya, said, there is a global capacity that exceeds demand by 600 million tonnes per year. The noble Lord, Lord Bhattacharyya, mentioned Tata Steel. Britain should be grateful to Tata for its billions of pounds of investment in British steel over the years. It is one of the largest manufacturers in Europe and has strong links with universities. It has endowed a chair at the University of Cambridge. I declare my interest as chair of the advisory board of the Cambridge Judge Business School. Some 60% of Tata Steel’s sales are to UK manufacturers and 25% are to the EU. The most important thing about the company is that it tries to be innovative. It has said that you must continue to drive innovation, but it pleads for a level playing field on energy costs, anti-dumping and business rates. Does the Minister agree with that? Tata Steel says that the success and future of the steel industry depend on innovation and skills and that the Government need to support periods of transition when the steel industry goes through ups and downs. In the past, the Government have said they would support this industry, yet when the Prime Minister went to India in November she did not even meet anyone from Tata.

The University of Cambridge produced a paper entitled A Bright Future for UK Steel. Once again, this talked about innovation but it also mentioned that half the steel used in this country is in construction. This sector, which has a plan for building lots more homes, employs 250,000 people from the European Union. What are we to do when Brexit happens? I am delighted by the recent news that:

“The UK steel industry has welcomed anti-dumping duties announced by the European Commission on some Chinese products”.

Can the Minister expand on that?

In conclusion, an article in the Financial Times asked:

“Is UK steel really a strategic industry”?

It said that it is to a town such as Port Talbot, but asked how strategic it is when it represents a small proportion of our economic output. Paul Forrest, head of economic research at the West Midlands Economic Forum—I am chancellor of the University of Birmingham—said that 260,000 jobs in his region are part of the steel supply chain. Local sources of steel production are helpful to the UK’s manufacturing ambitions. Nissan’s factory in Sunderland, which is the largest car plant in the UK, buys 45% of its sheet steel from Port Talbot.

Professor Andy Neely, a fellow of Sidney Sussex College and head of the Institute for Manufacturing at the University of Cambridge, said:

“Steel is undoubtedly foundational for so many products—but so is cement or plastics. You can … make the case that steel is a strategic material”.

But what if you can get the supplies from elsewhere? The reality is that the steel for Trident nuclear submarines is supplied from France and the latest generation of Ajax armoured vehicles will use Swedish steel. According to Philip Dunne, the Defence Procurement Minister at the time, no UK steel manufacturer could meet the requirements. There are some implications for sectors such as automotive, which require just-in-time availability, and, where it is available, UK steel plays a role in equipping our Armed Forces. Our latest Queen Elizabeth-class aircraft carriers are built by Tata Steel.

John Louth of RUSI said:

“The quality of British steel has made a big difference to the UK defence industry”,

including for our aircraft carriers. Close to 60% of steel used in the UK is imported, while two-thirds of UK output in the past couple of years has been exported.

I conclude with the words of Professor Andy Neely of the Institute for Manufacturing in Cambridge, who said that while steel may no longer be a vital input, it is part of the strategic argument over the shape of the UK economy. He said:

“If the UK says it cannot compete on steel, where does that process stop? The danger is that you end up saying the same in other sectors and we end up with a hollowing out of the British economy”.

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