1.  EXECUTIVE SUMMARY

  1.1  ISTC is the UK's largest steel union and the largest union in Corus.

  1.2  When Corus was created in 1999 it employed 33,000 people in the UK. Following the redundancy announcements of June 2000 and February 2001 this will be reduced to 22,000 by 2003—a reduction of over a third.

  1.3  UK steelworkers are the most productive in Europe, and at least as productive as the best American and Asian steelworkers.

  1.4  Corus has rejected offers from the ISTC and other trade unions to work in partnership for the good of the company, its employees and its shareholders.

  1.5  Corus has not engaged in discussions with the ISTC about possible action to weather its short-term difficulties. The ISTC calls on Corus to think again.

  1.6  Corus rejected discussions with an ISTC-led consortium to take-over Llanwern.

  1.7  Corus had made no significant investment in the UK since the merger. Its restructuring review contained no plans—it merely intends to "sweat" its UK assets. This places a question mark over the company's long-term commitment to steel making in the UK.

  1.8  The reversal of strategy by Corus towards its Workington rail plant shows both its lack of understanding of likely future demand and how quickly market conditions can change.

  1.9  Corus have adopted a contradictory position on the Euro. Corus has stated publicly that it has not been their major business concern on some occasions and subsequently that the Euro was dramatically affecting their business position. The company cannot appear to make up its mind on the issue.

  1.10  Corus have rejected all offers by the ISTC to make joint representations on the Sterling-Euro imbalance.

  1.11  Corus should be seeking to compete in the Single European Steel market, not merely trying to protect its own UK dominance.

  1.12  The ISTC believes that the ease with which UK employees can be dismissed promotes overtime and redundancy as the flexibility adapted by bad employers. This "boom and bust" approach is hampering the UK's international competitiveness.

  1.13  The UK Government needs to adopt a strategy to preserve this important strategic industry.

  1.14  All the promises made by the ISTC and the other unions since the merger have been kept: all the promises made by the company have been broken.

2.  INTRODUCTION

  2.1  The ISTC—the Community Union welcomes the opportunity to submit a supplementary memorandum of evidence to the House of Commons Trade and Industry Select Committee's inquiry into the future of the UK Steel Industry.

  2.2  The ISTC is the UK steel industry's major trade union, representing between 70 and 80 per cent of the UK steelworkers. The union represents the largest number of workers employed by Corus[1]. The ISTC and other unions representing Corus employees have pressed consistently for consultations with the company in advance of the announcement of major restructuring plans. However, despite promises that consultation would be extended, the unions have never had the opportunity to see or to discuss the company's proposals before they were announced publicly.

  2.3  The ISTC have previously submitted written and oral evidence to the Select Committee during the course of its inquiry. However, the major upheavals affecting Corus, the UK's dominant steel company, since the resignation of the Joint Chief Executive John Bryant and Fokko van Duyne on 5 December threaten the future development of the company and the strategic interests of the United Kingdom in having a modern efficient steel industry capable of providing competitively a full range of steel products for other manufacturing industries and for the defence sector. Consequently the union felt it appropriate to submit further evidence.

  2.4  Corus is the UK's largest steel producer, with a market share of between 52 per cent to 54 per cent in carbon steel products in the United Kingdom (UK). Prior to the 4,500 redundancies it announced on 16 June 2000, Corus employed 33,000 people in the UK.

  2.5  On 1 February 2001 Corus announced a further 6,050 redundancies in its UK operations by 2003. This does not include former Corus employees whose posts have been contracted out in the last several years. These redundancies, if put into effect, will reduce Corus' UK workforce to 22,000—a reduction of over a third within three years.

3.  REDUNDANCY ANNOUNCEMENT BACKGROUND AND ISTC'S LLANWERN PROPOSAL

  3.1  Following the resignation of Corus' Joint Chief Executives on 5 December, the company Chairman Sir Brian Moffat was appointed acting Chief Executive and announced a "radical restructuring" review of its UK operations.

  3.2  The ISTC requesting meetings with Corus to discuss its plans. An initial meeting with Sir Brian Moffat, Allan Johnstone, Corus' Human Resources Director and other senior managers was held on 22 December, followed by a subsequent meeting on 8 January. At both meetings ISTC requested the opportunity to work in partnership with the company to overcome its short-term difficulties before any firm decisions were taken. The Company rejected these offers.

  3.3  Throughout December and January, following the restructuring review announcement, speculation, which apparently came from sources close to the company, suggested that a number of UK plants were at risk. The focus of the speculation centred on the integration plant at Llanwern in Newport.

  3.4  In the absence of any willingness on the part of Corus to consult the ISTC or to the union's offer of partnership, the ISTC explored contingency plans to preserve the jobs of their members employed by Corus in the event of a major redundancy announcement.

  3.5  The Llanwern integrated steel plant is one of five such Corus plants in the UK. Llanwern produces crude steel and turns it into strip steel products. Because of overcapacity in Western Europe and the imbalance between Sterling and the Euro exchange rates, Llanwern is currently a major source of losses for Corus on carbon steel production in the UK. The ISTC believed that, should the company choose to close the whole plant, it should explore the possibility of taking it over, in the informed belief that the plant could be operated profitably and the jobs secured. This would have had the additional effect of stemming the company's major source of losses and allow it to focus upon managing its other UK plants where they were making losses.

  3.6  The ISTC identified sources of industry expertise and finances who believe that Llanwern has good prospects of producing and selling three million tonnes per year of strip steel products as an integrated plant. They agreed to form a consortium with the union to take over the plant should Corus be willing to discuss a transferral of ownership.

  3.7  On 23 January the ISTC wrote to Corus formally asking for discussions with the company in a co-operative spirit about taking over the plant should Corus decide to close it in full or in part.

  3.8  On 29 January ISTC received a reply from Sir Brian Moffat stating that:

"I do not think it appropriate to meet to discuss a possible acquisition of Llanwern by you."

  The reason given by Sir Brian for this was:

"We do not wish to invite any more competition in the UK over that which is already present from imports."[2]

  3.9  On 1 February Corus announced the closure of its Ebbw Vale and Bryngwyn works; closure of the pickle line, cold mill and one electro-zinc line at Shotton, closure of the coil plate mill on Teeside; and closure of iron and steel making operations, of the annealing and tempering facilities, a reduction in activity levels at the hot strip mill and cold mill operations, at Llanwern. Corus projected losses for the 12 months is estimated to be £1,050 million of which all but £23 million is caused by redundancy payments and writing off capital assets.

  3.10  The partial closure at Llanwern ruled out ISTC's hope of being able to take over the plant. Even if Corus felt forced by the weight of public opinion to offer the steel-making facility to the ISTC consortium, it is clear that the original consortium members would not feel confident that Corus would not try to use its market dominance to damage their current UK steel operations.

4.  CORUS' BUSINESS STRATEGY

  4.1  Corus was created from the merger of British Steel and Hoogovens of the Netherlands in October 1999. At its inception the company promised the steel unions, MPs and local authorities that the present British plant configuration would be maintained and promised to produce over 20 million tonnes of steel per year at a time when the Sterling-Euro exchange rate was very close to its current level. Since then it has closed Shelton Works in the West Midlands and announced 11,000 job losses in Britain alone.

  4.2  Corus had no proposals for investing in new plant or equipment in Britain when it made its restructuring announcement on 1 February. In such a capital-intensive industry this is clearly folly if one wishes to maintain and expand market share. This fact adds weight to the contribution made by the flexibility and efforts of Corus employees in making the company the most efficient steel producer in Europe, at a time when the Corus board have merely attempted to "sweat" the company's assets, both capital and employees.

  4.3  An example of Corus' inability to assess future market conditions is its approach towards its Workington rail track plant, the only one of its kind in the UK. On 19 May 2000 Corus announced that it intended to reduce the number of manned shifts at the plant, causing a reduction in the 400 strong workforce by 168. This was viewed as an inevitable precursor to the winding down of the plant in the eyes of steel unions, who had seen this pattern on numerous occasions. Corus had purchased the Sogerail railway track plant in France in 1999 for a sum in excess of £100 million: upgrading the Workington plant so that it could produce both long and short rail would—the ISTC have calculated—have cost only £35 million and would also have enhanced the capacity of the company to compete at home and in the expanding European market.

  4.4  The ISTC and other trade union representatives informed Corus that they did not believe that reducing the shifts with a view to closing down the plant was a sensible business decision. This was especially true in light of the expected large increase in railway infrastructure that was likely to occur as a result of the Government's forthcoming 10-year transport plan. Corus management rejected the ISTC's views out of hand.

  4.5  An intensive campaign was launched by the steel unions, the local authority in Workington, and Dale Campbell-Savours MP. Following Corus' appearance before the Trade and Industry Select Committee, as part of a UK Steel Association delegation in November, it now appears that they have reversed the run down of the Workington plant and it is now operating at full capacity thanks to the flexibility and co-operation of its skilled workforce. The ISTC understands that 90 per cent of the £120 million order that Corus secured from Railtrack in May 2000 is now being produced at Workington.

  4.6  Another area where Corus have adopted an illogical and ever changing business strategy is in their approach to transport costs. For example, in the strategy that Corus announced on 1 February it proposes to close the steel-making capacity at Llanwern. This will entail transporting steel from Teeside and reheating it before transporting it back to Teeside and other UK plants.

  4.7  Teeside to Newport is 280 miles (by road). Corus is intending to change a round trip of one mile from the Steel Mill and Llanwern to one of 580 miles from Teeside and back again. This must involve additional costs of at least £10 per tonne for the transport alone. This does not suggest that this operation is sustainable and the ISTC believe that it may well lead to the eventual closure of the entire Llanwern site.

  4.8  In the case of the Workington plant, Corus suggested that it was the transport costs within the UK that diminished its competitiveness. Corus cannot have it both ways.

  4.9  The evidence shows that Corus' position on transport costs within the UK have not been consistent even within a 12-month period. The ISTC believe that they have attempted to use transport costs to cover pre-determined planning decisions.

  4.10  What is certain is that UK companies dependant on steel for manufacturing would have to pay about £40 per tonne in extra transport costs to import steel products into the UK if the cuts planned by Corus are implemented. By taking long-term action to tackle a short-term problem, Corus are imposing long-term costs burdens on the UK manufacturing sector.

  4.11  UK steel workers, including those employed by Corus, have made tremendous sacrifices in the past two decades, with latest figures showing that they produce 571 tonnes per person, up from 533 in the past year. This makes them the most productive steel workers in Europe and as competitive as the most productive steel workers in North America and Asia. The employees feel that their efforts and flexibility have not been matched by equivalent leadership, ability to make decisions and business acumen by the Corus board, who have turned the cash-rich British Steel into a company with debts of £1.8 billion that is dependant on bank support to service its debt.

5.  STERLING AND THE EURO

  5.1  The ISTC has been proactive in lobbying the Government to take action to reduce the imbalance between Sterling and the Euro. The ISTC has met Cabinet Ministers on several occasions, including the Chancellor of the Exchequer and the Prime Minister.

  5.2  The ISTC has proposed to Corus on numerous occasions that there should be a joint approach to the Government on this issue. Corus has refused to do and has not stated publicly that it favours UK accession to the Euro.

  5.3  The ISTC would draw the Committee's attention to comments made by Sir Brian Moffat following the latest redundancy announcements that:

"This adverse situation has been worsened dramatically by the weakness of the Euro and as a result very significant losses have been incurred."[3]

  5.4  This statement is not consistent with the views outlined by Sir Brian only three days earlier, when he said that:

"The future relative strength of sterling against the Euro . . . the current situation is [only] an additional burden."[4]

  5.5  The ISTC is extremely disappointed that Corus management have not sought to engage with trade unions to develop further short-term flexibility and identify savings that would reduce the financial pressures on the company until market conditions improve.

  5.6  The ISTC finds it strange that Corus should make a decision to significantly reduce its UK workforce and steel-making capacity at a time when Sterling has consistently weakened against the Euro. Sterling has fallen 11.5 per cent from its peak against the Euro in May 2000, and the UK Government has given strong indications of its desire to join the single currency should the conditions be right.

  5.7  The ISTC finds it difficult to understand the negative assessment of Corus concerning the long-term demand for steel in the United Kingdom from UK manufacturing, considering that the manufacturing bases of France and Italy are roughly similar to that of the UK and they produce substantially greater tonnages of steel each year. It is even more difficult to understand the sense of these assessments in the light of the experience of Spain where the manufacturing sector is much smaller than the UK's but production of steel has overtaken that of Britain. The ISTC believes that Corus should be trying to actively compete in the whole European market rather than to merely maintain its UK dominance.

6.  CONCLUSION

  6.1  The ISTC believes that Corus have been guilty of grave short sightedness in response to short-term pressures. These have been made worse by imprudent management decisions, for example the decision to return £683 million to shareholders at the time of the merger and to accumulate debts of over £1.8 billion.

  6.2  Steel is an industry notoriously vulnerable to sharp cyclical fluctuations and it is sensible business practice to keep reserves to tide a company over during low points in the cycle. The ISTC made this clear to Corus when it decided to return the £683 million to its shareholders: its views were ignored.

  6.3  The ISTC believes that the efficiency gains and sacrifices made by the British Steel, and then Corus UK, workforce have not been matched by the standards one would expect from visionary management intent on the company's growth. Whilst there are pressures relating to the strength of Sterling and demand in the UK, the union believes that these could be overcome with greater entrepreneurial flair and strategic coherence.

  6.4  The ISTC believes that it is perverse for the UK Government to have a strategic approach to the maintenance of key industries in the UK such as the power supply industry—in the form of coal, and shipbuilding industry, in case of national emergency and yet not for steel. The UK steel industry is a national strategic asset crucial to economic and defence interests.

  6.5  Once steel capacity is lost it cannot be reconstituted quickly and only at extreme cost to the Exchequer. The ISTC believes that it is clear that Corus has no long-term commitment to the retention of steel-making capacity in the UK and that the Government must develop a strategy for the steel industry in the UK before it loses critical mass and declines irretrievably.

  6.6  Fundamentally the ISTC believes that Corus can have a profitable long-term future as a steel producer in the UK. However, no company can prosper if it does not trust and utilise its major asset—its workforce. It is clear to the ISTC that rejection of partnership in favour of paternalism is the major obstacle in the way of the company achieving this.

  6.7  The ISTC welcomes the Government's commitment to review the consultative rights of UK employees. The chimera of flexibility has for too long been used to drive down standards for UK employees. The situation at Corus, where the unions have offered to discuss flexibility but have had their offers spurned, shows that the only flexibility that some UK companies, such as Corus, are interested in are those of greater overtime and greater redundancy. The "boom and bust" approach within companies must be eradicated if the UK is to be truly internationally competitive.

  6.8  All the promises made by the ISTC and the other unions since the merger have been kept: all the promises made by the company have been broken.

February 2001

2   Letter to Michael Leahy, ISTC General Secretary, from Sir Brian Moffat, Chairman and Acting Chief Executive of Corus, 23 January 2002. Back

3   Sir Brian Moffat, Corus Chairman, The Evening Standard 1 February 2001. Back

4   Sir Brian Moffat, letter to Michael Leahy, ISTC General Secretary, 29 January 2001. Back