European Committee: Steel: Preserving Sustainable Jobs and Growth in Europe

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Nick Hurd, Minister for Climate Change and Industry appeared before the European Committee and I was able to ask him about what the Government has done to help the steel industry. I opened proceedings:

 

Stephen Kinnock: It is a pleasure to serve under your chairmanship, Mr Wilson. The UK steel industry is of vital national interest. The importance of steel to the maintenance of resilient supply chains and to the strength of our key defence, automotive, construction and rail industries cannot be overstated. As steel is so important, and as the UK steel industry faces major challenges, the European Scrutiny Committee recommended this communication from the European Commission for debate in April 2016. The communication sets out a wide range of proposals intended to ensure that the European steel sector can overcome its short and long-term challenges.

As we prepare to leave the European Union, the development of an effective policy framework to ensure the long-term viability of the UK steel sector becomes even more important. The European framework and rules will continue to apply to the UK until the moment of Brexit, but we need some idea of UK policy thereafter. It is obviously deeply disappointing that despite our repeated reminders, the debate has been delayed for so long. Our frustration at the failure to schedule the debate at a time of crisis in the steel industry led us to arrange a joint evidence session with the Committee on Energy and Climate Change, the Committee on Welsh Affairs, and the Committee on Business, Innovation and Skills in July 2016. Despite that session, a number of fundamental questions raised by the European Scrutiny Committee at the outset remain unanswered, and they assume greater significance given events since then. I hope that the Minister will shed light on those questions today.

The first question is about trade defence. We have asked the Government why they oppose the removal of the lesser duty rule in the face of a continuing flow of cheap steel from China. The long-standing deadlock on that in Brussels was broken in December, and it now ​looks likely that the application of the rule will be subject to significant limits. What approach will the Government take to the UK’s future trade defence regime to ensure that our steel industry is no less protected than that of the EU?

The second issue that the European Scrutiny Committee raised relates to market economy status for China. We have repeatedly asked the Minister for the Government’s position and analysis on granting MES to China, and about whether there were any links between their opposition to limiting the lesser duty rule and wider UK-China trade and investment relations. We asked, in particular, whether bilateral and multilateral discussions thus far had had any success in addressing the challenge of overcapacity and unfair trading practices.

The third area is investment for innovation, modernisation and training. The communication highlights a number of EU funds that are available to strengthen competitiveness, innovation and training. The Committee asked the Government what steps they were taking to encourage industry to avail itself of funding opportunities and to address underutilisation. Although the Government have confirmed that the Treasury will guarantee EU funding obtained before we leave the EU, we asked them what arrangements they would put in place to ensure that the UK steel industry had access in the longer term to funds to support new technologies and modernisation, and, in other cases, to support workers facing structural change and redundancy.

Related to that is the question of state aid. In response to the Committee’s questions on what reforms or additional flexibility the Commission might be considering in respect of state aid to the steel sector, and whether the Government would support those, the Minister informed us in late October that the UK has secured state aid compensation for UK energy-intensive industries for the impact of renewables and climate change policy on electricity costs. It is pertinent to ask, then, what approach the Government plan to take to support for the steel sector once the UK is no longer bound by state aid rules.

Finally, the communication on steel highlights energy prices, the emissions trading scheme and the circular economy package, which deals with recycling. There has been much talk in the House of the effects of high energy prices on energy-intensive industries; I will leave that point to other Members to raise. The Committee asked the Minister whether the Government envisaged any short-term amendments to the ETS to address challenges faced by the steel industry. The then Minister informed us in July that the Government were not planning any amendments to the ETS in the short term, and that they were working closely with industry towards an approach that better targets the available free allowances at the sectors that need them most.

The Minister informed us in his last communication that the UK remains an active participant in the latest phase of ETS negotiations, and was hopeful that a general approach could soon be agreed. I look forward to the Minister’s briefing on the progress of those negotiations, to his comments on the approach that the Government plan to take in this area following our withdrawal from the EU, and to an informed and lively debate.

Minister for Climate Change and Industry: It is a pleasure to serve under your chairmanship, Mr Wilson, I think for the first time. I thank the hon. Member for Aberavon for setting out his stall in such a typically clear way.

I genuinely welcome this debate. The hon. Gentleman is right: this is arguably a pivotal moment in the evolution of steel-making in our country, for all sorts of reasons, not just Brexit. It matters a lot, not least because, as he was right to say, the steel sector is extremely important. It is right to describe it, as Members on both sides of the House do, as a foundation sector. It is important to the general economy, but also matters a great deal in certain parts of the country, and in constituencies where communities and livelihoods depend on it. The Government understand and respect that.

The hon. Gentleman regrets not having an earlier debate. I think he knows, because he is a reasonable man, that quite a lot has happened since the beginning of 2016, but there has been no shortage of debate about the steel sector in the House. In fact, many of us were convened not that long ago in Westminster Hall to address exactly this issue.

Let me start by setting out some of the background to the Commission’s communication on steel, published in March 2016. During the past two years, the steel industry has faced very challenging global economic conditions. A combination of low demand in markets such as Europe and the US—demand has not recovered to pre-recession levels—and a slowdown in the rate of China’s economic growth and investment created surplus production capacity on a huge scale, which caused steel prices to fall dramatically. It also led to an increase in the volume of steel products dumped on world markets, which had damaging effects on European steel producers.

Collectively, the EU is the second largest steel producer after China, with significant production in a number of member states, including the UK. Steel production accounts for over 1% of EU GDP and employs more than 300,000 workers, mainly in skilled technical jobs. Taking account of that European interest in the steel sector, the Commission communication was intended to set out what a response at EU level could be, and also what member states could do to support their steel sectors and ensure that they were competitive and sustainable.

The communication identified several areas for action at EU and member state level. At EU and international level, those included trade policy and tackling global steel production overcapacity. Within the EU, they included creating innovative and sustainable steel producers through investment in research and development, skills and energy efficiency, and clarifying the state aid rules on support for them. It also encouraged efforts to make the industry more sustainable, and in particular to encourage the recycling of raw materials and waste, as well as steel scrap.

With your permission, Mr Wilson, I will set out what action has been taken by the EU and the Government in those areas. First, on trade policy, which the hon. Member for Aberavon opened with, the communication identified the importance of protecting European steel producers from unfair trade practices. The Government have worked with the Commission and EU member ​states to do that. There are now 41 trade defence instruments relating to steel in force within the EU. They have been effective in reducing the level of dumped products significantly, with reductions ranging between 70% and 90%.

The UK has worked with the Commission to accelerate the process of investigation and the imposition of provisional duties. That has been achieved in the two most recent investigations into hot-rolled flat products and heavy plates. In addition, the Commission proposed taking forward the modernisation of the EU’s trade defence instruments first proposed in 2013. The UK is fully supportive of the modernisation of those instruments and we continue to work constructively with the Commission, member states and the European Parliament, because global production overcapacity is a challenge faced by all steel-producing countries and requires a global solution.

The World Steel Association estimates that, in 2016, about 70% of production capacity was utilised and 30% was surplus. That is why the G20 chose to act and created the global forum on steel excess capacity at the Hangzhou summit last September. The UK said clearly that we will actively participate in that with G20 and OECD partners to take forward the commitment to exchange information on capacity and to take effective action to tackle the problem.

The hon. Gentleman talked about investment. The communication identified the need for the steel sector in the EU to be sustainable and competitive, an objective the Government share. To support that, the communication sought to clarify the operation of state aid rules in relation to the steel sector. As hon. Members are aware, the steel sector is subject to specific rules, which preclude it from receiving regional or restructuring aid. However, it can receive other forms of aid, including support for research and development, skills development, and energy and environmental projects. The Government have already provided such funding, with significant investment at Warwick and Swansea Universities, funding provided by Innovate UK through the high-value manufacturing catapult centres, and by supporting research and development projects.

We are also able to assist the UK steel sector to access European funding opportunities, whether the research fund for coal and steel or the Horizon 2020 programmes. In addition, I am aware that European structural funds have been used to support projects that will benefit the steel sector in the UK in south Wales and south Yorkshire.

The communication highlighted the fact that state aid rules allow member states to compensate energy-intensive industries for the indirect financing costs of renewable energy support schemes. The Government have already taken action to compensate energy-intensive industries in the UK, including the steel sector. To date, the Government, on behalf of taxpayers, have paid £133 million in compensation to the steel sector for energy-intensive industries.

We fully understand the importance of the steel sector becoming more sustainable. I would go further than that. As the hon. Gentleman knows from previous debates, the Government are interested in helping to move the sector along from a story of survival and hanging on to one of growth and being a dynamic member of the supply chain in the UK. At the request ​of the UK steel sector, we have commissioned a future capabilities study to map the capabilities the sector will need to be competitive and to exploit new market opportunities. One aspect will be to consider technological innovation in steelmaking processes and product life cycle management, which will help to improve the long-term sustainability of the sector.

Our industrial strategy, the first stage of which was published last week, provides a great opportunity for the steel sector to share its vision of a sustainable future with us. We are actively asked it to share its post-Brexit plans and we will work with it, as we have said in public and in private, to ensure a long-term and sustainable future.

In conclusion, the Government have taken action to support the steel sector and respond to the requests made by the industry. We have taken action on trade through 41 trade defence instruments; provided £133 million to compensate for the costs of energy and renewables policy; and given an additional four and a half years for the sector to adapt to secure flexibility in the introduction of EU emissions regulations. We have issued new guidelines on the public procurement of steel, which I hope the hon. Member for Aberavon welcomes, and a pipeline of forthcoming opportunities for which UK steel producers can tender.

The Secretary of State and I will continue to work with the steel sector, the devolved Administrations and other stakeholders such as the all-party parliamentary group on steel and metal related industries, which recently published its report and of which the hon. Member for Aberavon is a distinguished member, to ensure a sustainable and competitive future for the UK steel industry.

Stephen Kinnock: I thank the Minister for his comprehensive answers. The question that needs to be addressed is about the impact of Brexit and what sort of Brexit we are looking at. The Prime Minister said in her Lancaster House speech that she thinks that no deal would be better than a bad deal. That seems to indicate an openness to a WTO-type of Brexit, in which we resort to WTO rules. That is combined with an apparent ambition to get the article 50 negotiations and the future comprehensive trading relationship done within a two-year period, which seems to be a heroic assumption, to say the least.

In that light, does the Minister agree that the impact of a WTO type of Brexit would be catastrophic for the British steel industry, not so much because of the tariffs on steel, which at WTO levels look to be about 2% to 3%, but because of the automotive sector, whose fundamental role as the customer base of so much of this country’s steel industry would be wrecked by a 10% tariff on every car we are trying to export into the European Union? Will he assure us that he will press the Prime Minister and other key colleagues as hard as possible to ensure we do not have that form of Brexit?

Mr Hurd: I thank the hon. Gentleman for his question, which I will answer in two parts. First, although I do not blame him for this, the situation we are in precludes any Minister responding to speculation about what the outcome is likely to be. We are embarking on a negotiation, which has to play out. The Prime Minister made it clear in her speech that we are aiming to maximise access and minimise friction—the friction point has been important in the conversations I have had with the industry.​

That leads me to my second point. I represent the Department for Business, Energy and Industrial Strategy. A large part of our job is to listen to business and ask two questions, the first of which is: what are your priorities and concerns in relation to Brexit, in terms of both risk and opportunity? The second question, in relation to the industrial strategy, is: what is the most pressing and important issue supporting and underpinning the competitiveness of your sector, and your ability to create good jobs and pay better wages? Those are the conversations we are having at the moment.

It is no secret that tariffs are fundamental to the auto sector, which the hon. Gentleman rightly identified as being extremely important to the dynamic growth potential that we want in the steel sector. It was absolutely fundamental to the conversations that the Secretary of State and I had with Nissan. He knows that, and it is entirely clear why. It is our job as a Department to do two things: first, to ensure that that is properly understood by those leading the negotiations—it is—and, secondly, to reassure large, important companies such as Nissan and give them confidence in the fact that we are going to do everything we can to support the competitiveness of the car industry and the industries that supply it. Nissan made its decision, which everyone welcomed, and there is a series of ongoing conversations with other companies in the same vein. Their concerns are understandable. It is our job to listen to them and do what we can to reassure them, because significant jobs are at stake as a result of the investment decisions they make.

Stephen Kinnock: I thank the Minister for that response. I have one humble suggestion, which is that a push for an interim deal—a transitional arrangement—to smooth the transition into the new form of our relationship with the EU will be absolutely critical to avoid the cliff edge.

I have a specific question on energy and some more generic points. The specific question is this. The Minister rightly pointed out that the Government agreed to provide compensation to energy-intensive industries. That was cleared by the European Commission, in terms of state aid, which was very welcome. We also know that the period of time for that energy-intensive industry compensation package expired last month. The Government put in place no contingency measures, and nothing has been done to secure a permanent exemption for our energy-intensive industries, in terms of being able to provide that aid without having to keep going back to the Commission for approval. Will he give us a specific assurance that our steel industry will not face a cliff edge in April, when the compensation package ceases, with no transition to a new arrangement, which would be disastrous? That is the specific point.

On the more general point, the APPG report was mentioned earlier—I am sure that the Minister has read it closely. I encourage him to accept our recommendations, such as publishing an annual comparison of UK steel industry energy prices with those of our competitors; completing the energy-intensive industry compensation exemption package I just mentioned; looking at wholesale costs and developing mechanisms for UK steel producers to access lower-price wholesale energy, which is a critical issue; looking at network and transition costs, which are far too high in this country; and considering aid to energy efficiency—there are fantastic opportunities, such ​as the off-grid generator in Port Talbot, which would use gases from the blast furnace. What are his views in that context?

Another recommendation was to do with reform of the EU emissions trading scheme, because there is a real problem around what happens in 2021. What will we do to get long-term reform? There is also the broader issue of the remodelling of our energy model. Far too much pain seems to be concentrated in our manufacturing sector. There must be a better way of distributing the costs under climate change policy, which we all welcome. The costs are far too concentrated in our manufacturing and energy-intensive industries. The Minister has said that the Government are looking to reform the energy industry, so I suggest he uses our APPG report as a starting point for that process.

Mr Hurd: I thank the hon. Gentleman for his suggestions. He opened with a humble suggestion—experienced Ministers know that those are the most dangerous. I will, in the same spirit, take what he said on board and feed it to my Secretary of State, whom I am seeing after this Committee, because we have a meeting with the steel sector trade unions. I make that undertaking.

On the energy costs, the assurance the hon. Member for Aberavon is seeking is one that I gave on the Floor of the House at departmental questions the other day. As he knows, we have made a commitment on compensation. We have made it quite clear that we want to move to an exemption-type scheme. He knows because he is well informed, but that process is taking longer than we expected and wanted. We will therefore continue with compensation until that is worked through. I have made that undertaking on the Floor of the House and it stands, because we totally understand the need for consistency and visibility. I hope that that is reasonably clear.

On the broader challenge, I genuinely welcome the APPG report. As the hon. Gentleman knows, it feeds into what I hope is quite a deep collaborative set of conversations between Government and leaders of the steel sector about its future. Those leaders have embraced the challenge we have set, which was that we need to move on from the language of survival, sticking plasters and muddling through, to a situation in which we have politicians and society recognising the steel sector for what it needs to be, which is an incredibly important foundation sector and part of a dynamic and valuable national supply chain. They bind to that, and the process that we are working through is informed by the capability study we funded and input such as the APPG report. That will all feed into, I hope—if the right spirit and rigour are in place—some form of sector deal in which Government and industry can set out their mutual commitment to some form of agreed common goal. That is an exciting process and I hope he welcomes it. We welcome his contribution.

In that context, and going back to what I was saying, the hon. Gentleman and the report are quite right to identify that the issue of energy costs is now a complex one. We have to move from where we are now. After a lot of sticking plasters have been applied, we still have a gap. As he said, the factors determining that are complex and relate to wholesale energy costs, our energy mix and ​network costs. They also relate in part to ongoing policy commitments. We need to take a bit of time and work with people who have an interest and expertise in this area, so that we thoroughly investigate all our options.

As the hon. Gentleman might expect, the Department has done a lot of work in this area, but it needs to be sweated a bit harder. Our commitment is to publishing a road map later this year to show what our strategy is. That will be informed by the review that we are setting up, which is, in part, an external challenge relating to our processes and work. This issue is of such importance that it requires a structure and process around it that leads to a strategy that is more long term than the sticking-plaster approach we have taken until now. That has not got us to where we need to be, in respect of having a level playing field for this sector and others—this is not just about the steel sector—that are, quite rightly, pushing us hard.

Stephen Kinnock: On behalf of the European Scrutiny Committee, I thank the Minister for his time today. To follow up on the additional challenges made by my hon. Friend the Member for Sheffield, Brightside and Hillsborough, we have not really talked enough today about the long-term future of the industry in respect of research and development and skills. I commend to the Minister the all-party group’s report, in which we make a number of recommendations such as establishing tripartite public-private partnerships that also involve the trade unions, to identify capability gaps so that we have the right skills for a future-facing industry.​

We need low-cost loans to support R and D and innovation. We want the Government to consider intervening more in incidents of corporate failure, particularly with soft loans and with the financial underpinning that is required for things like mothballing, which needs to be far more carefully and strategically managed. We feel that there is a real need to look at the opportunity of creating a national bank for industry that would give the kind of short and long-term financial assistance that is required for research and development.

Fundamentally, it comes down to primary steel making in this country. If we are committed to primary steel making, we have to ensure that we have a blast furnace capability that is fit for the future, has maximum efficiency and is able to make as broad as possible a portfolio of products to keep the British steel industry at the cutting edge. That will require support from the Government, and it will require industry to step up, along with our friends in the trade union movement.