Steelworkers vote to accept Tata deal – what are the next steps for the industry?

17 February 2017

Article by Gareth Thomas,  National Assembly for Wales Research Service

View this post in Welsh | Darllenwch yr erthygl yma yn Gymraeg

Picture showing Port Talbot Steelworks

Image from Flickr by Ben Salter. Licensed under Creative Commons.

On 15 February 2017, trade union members from Community, UNITE and GMB all voted to accept the deal offered by Tata Steel relating to pensions, future investment and job security.  The three trade unions had recommended that workers accept the deal, while recognising the difficult decision workers would have to make on their pensions.  Tata have said that work continues with the unions and others to build a secure future for the industry.

What is in the deal?

The UNITE trade union has set out details of the proposal that union members were balloted on, which included:

  • Closing the British Steel Pension Scheme to future accrual on 31 March 2017 and introducing a Defined Contributions Pension Scheme. Additional one-off payments to pension scheme employee members aged 50+ who retire between 60 and 64 will also be available in some circumstances.
  • Commitment to run 2 blast furnaces at Port Talbot until at least 2021, and proposed investment in Blast Furnace 5 to extend its lifespan beyond 2021.
  • Commitment to an investment plan which proposes £1 billion of investment over 10 years, conditional on Tata Steel UK making at least £200 million in earnings before tax, interest, debt and amortisation (EBITDA) per year.
  • Protection against compulsory redundancies until 2021, equivalent to the commitment given to the workforce at Tata’s IJmuiden plant in the Netherlands.

Tata will also seek to restructure its UK Profit Bonus, and introduce new rates and conditions for new employees. It also aims to make £13 million of employment cost savings across the UK.

How have the Welsh and UK Governments invested in the steel industry and steelmaking communities?

The previous Welsh Government offered Tata a package of over £60 million, with conditions attached, prior to the announcement on the sale of its UK assets in March 2016, including investment in environmental improvements and developing the galvanising line at Port Talbot. Following the vote, the Cabinet Secretary for Economy and Infrastructure said that he hopes to be able to bring forward announcements shortly on these projects.

The Welsh Government also established the Port Talbot Waterfront Enterprise Zone in response to the job losses announced in January 2016. The UK Government also agreed to fund Enhanced Capital Allowances for three sites within the Enterprise Zone, which enable businesses to claim a 100% first year allowance for the capital cost of new investment in plant and equipment.

In December 2016, the Welsh Government agreed to contribute £8 million towards a total investment of £18 million in improvements to the Port Talbot power plant and setting up a R&D base in Swansea. In February 2017, it contributed funding of £1.6 million towards environmental improvements at Celsa Steel in Cardiff, and £1.2 million for investment in three other companies in the industry.

In December 2016 the Welsh Government agreed to provide £4 million to Tata to match its investment in training staff and managers across Wales. The Welsh Government’s ReAct redundancy support scheme has assisted workers from Tata and supply-chain companies.

The UK Government has provided assistance to mitigate high electricity prices and the impact of climate change policy. Over the two compensation schemes that have been introduced, the UK Government has provided over £100 million in compensation to the steel industry.

Has this support addressed the key challenges the industry faces, and what further action is needed?

In October 2015, the steel industry identified five areas where action could be taken to address the challenges it faces in the longer term. UK Steel says that of these, one has been actioned fully, three partially and one not at all. In contrast, the UK Government considers it has addressed four of these actions.

On energy prices, while the steel industry welcomed the UK Government’s package of support, electricity prices for UK producers remain considerably higher than those for European competitors. UK Steel highlight a differential of £17 per Mega Watt Hour between UK and German producers, impacting on investment decisions between steelworks in different countries.

Action around the ‘dumping’ of steel will be a key area where the UK Government will need to make decisions after the UK leaves the EU, as it will need to establish trade defence measures. There has been concern that previous EU anti-dumping tariffs have not been high enough, and that the UK Government has not supported the lifting of the ‘lesser duty’ rule by the EU. The sector is concerned about the potential for tariffs being imposed after the UK leaves the EU.  While WTO tariffs on steel products are 2%, tariffs such as the 10% on the automotive industry are of greater concern.

On business rates, the steel industry has called for plant and machinery to be exempt from business rates bills.  UK Steel found that UK companies pay five to ten times more business rates than producers in France and Germany. The Welsh Government has not taken this forward, as they consider it complicated to operate and have preferred to support the industry in other ways.  However, the recent business rates revaluation has seen a fall in the average rateable values of steelworks in Wales.  UK Steel have noted that under the Welsh Government’s transitional relief scheme steelworks will not have business rates bills reductions capped as will happen in England.

Both governments have also taken action on procurement.  The Welsh and UK Governments have published infrastructure pipelines of which projects will require steel. Additionally, the Welsh Government has changed its transport contracts to require that ‘dumped’ steel is not used.  The UK Government has also introduced procurement measures, including requiring central government departments to consider economic and social impacts of the steel they source. Key areas of future action for the steel industry include monitoring compliance with guidance, and developing transparent reporting mechanisms.

In May 2016, Swansea University called for backing for a new proposal for a national innovation and technology centre for steel.  The IPPR have argued that foundation industries such as steel should be better integrated into the Catapult networks, which are designed to boost innovation in key sectors across the UK.

Looking forward, while the UK Government’s proposals for an industrial strategy have been seen by some as not sufficiently considering steel, the UK Government and the steel industry are discussing the potential for a ‘sector deal’ for the industry, which is supported by the Welsh Government.  Sectors will develop plans to boost productivity.  The UK Government could then assist in a number of ways, including skills and training policy, changes to regulation, helping address barriers to trade and supporting the creation of new sectoral institutions.

How do women and men contribute to the Welsh economy, and how can an economic strategy reflect this?

31 January 2017

Article by Gareth Thomas, National Assembly for Wales Research Service

Darllenwch yr erthygl yma yn Gymraeg | View this post in Welsh

six-people-working-in-office-725x483

Image from Google by Pixnio. Licensed under Creative Commons.

Over the coming weeks, the Assembly’s Economy, Infrastructure and Skills Committee will be holding a series of seminar sessions to gain different perspectives on what the Welsh Government’s new economic strategy should look like. The first session, on 2 February, will look at how an economic strategy could meet the needs of women and men in Wales.  Ahead of this, here are five of the key differences between the roles that women and men play in the Welsh economy that are likely to inform the session.

Women are more likely to work now than 25 years ago, although they are still less likely to work than men

When figures were first published by the Office for National Statistics (ONS) in March to May 1992, 58.9% of women aged 16-64 in Wales were in employment, compared to the most recent figure of 69.9% in September to November 2016.  Over the same period, the equivalent figure for men increased from 71.7% to 75.1%.

The UK Government’s Women’s Business Council has estimated that equalising the economic participation rates of women and men could grow the UK economy by more than 10% by 2030.

Almost three quarters of part-time workers are women

ONS figures show there are 286,000 women working part-time in Wales, and they make up 73% of all part-time workers.  In the year to September 2016, 85% of working men have full-time jobs, and 15% work part-time.  In contrast, 57% of working women have full-time jobs, while 43% work part-time.

The Women Adding Value to the Economy project found that part-time work is strongly correlated with occupations that predominantly employ women, such as personal services, sales and care occupations.  They found that in Wales, at least 40% of these jobs are likely to be offered on a part-time basis, restricting opportunities to access full-time work.

On average women are paid less than men per hour, and are more likely to be paid less than the living wage

There are two common ways of comparing differences in the pay of female and male workers – both of these show that on average women are paid less per hour than men in both Wales and the UK.

  • The headline measure used by the Office for National Statistics compares median hourly earnings of women and men working full-time, excluding overtime. Using this measure, in 2016 the gender pay gap in Wales was 7.5% for full-time workers, below the UK figure of 9.4%.
  • Another way used to measure the gender pay gap is to look at median hourly earnings excluding overtime for all working women and men, as this takes into account that women are considerably more likely to work part-time than men. Using this measure, in 2016 the gender pay gap in Wales was 15.7% for all workers, below the UK figure of 18.1%.

The implications of this difference in pay are illustrated by women being more likely than men to earn below the living wage. Data from the ONS shows that in 2016, based on the hourly living wage of £8.25 as at April 2016, 29% of women (172,000) working in Wales earned below the living wage, compared to 20.5% (113,000) of men.  Part-time workers are much more likely to earn below the living wage than full-time workers.  In 2016, 43.2% of female part-time workers (109,000) earned below the living wage, compared to 53.2% of men working part-time (39,000).

Women and men tend to work in different sectors of the Welsh economy, and are affected differently by Welsh Government sector prioritisation

Male and female employment are concentrated in different sectors of the Welsh economy. In the year to September 2016, half of all working women were employed in public administration, education and health, comprising 72% of workers in this group.  In contrast, men are employed across different industries, and represent more than 70% of workers in the agriculture and fishing, energy and water, manufacturing, construction and transport and communications industrial groupings.

Women are less likely than men to work in a Welsh Government priority sector, and represent a third of workers employed in these sectors.  The Welsh Government’s current economic strategy, Economic Renewal: a new direction, developed a sector-based approach to target business support to 6 key sectors, subsequently increased to 9. The percentage of female workers in these sectors is set out in the graph below.

graph

Source: Welsh Government, Priority Sector Statistics 2016 (table 3.6)

Women are less likely to start or run a business than men

The UK Government’s Small Business Survey 2015 found that 23% of small and medium enterprises (SMEs) in Wales are women-led businesses. Self-employed women represent 31% of all self-employed people in Wales, and men are twice as likely to be self-employed as women. In the year ending September 2016, 63,600 women (9.4% of working women) aged 16+ in Wales were self-employed, compared to 138,400 men (18.6% of working men).

A number of challenges for women seeking to start a business have been identified by the Federation of Small Businesses (FSB), Chwarae Teg and Women’s Business Council:

  • Access to business support and finance: Small women-led businesses are seen by the FSB as less likely to access finance than male-led equivalents and on average begin their business with a third less capital.
  • Self-perception and skills: The FSB and Women’s Business Council found that women are less likely than men to think they possess the skills needed to start a business, and that a number of barriers potentially exist to addressing this.
  • Perceptions and discrimination: 33% of FSB survey respondents reported experiencing discrimination based on their gender.

You can watch the Committee meeting live on Senedd TV at 2pm on 2 February.

Proposed toll reductions for the Severn Crossings

20 January 2017

Article by Sean Evans, National Assembly for Wales Research Service

View this post in Welsh | Darllenwch yr erthygl yma yn Gymraeg

severn

Image from Flickr by Ashley Coates. Licensed under Creative Commons.

On 13 January 2017, the UK Department for Transport (DfT) and the Wales Office launched a consultation on proposals to reduce toll prices on the Severn Crossings. The consultation is seeking views on proposals to introduce reduced tolls, regulatory changes, reduced off-peak charges and free-flow charging before the Severn Crossings revert to public ownership sometime in late 2017 or early 2018.

What’s behind these proposals?

A concession agreement was awarded to Severn River Crossing PLC (SRC) in 1990 which commenced in April 1992 and operates subject to the provisions of the Severn Bridges Act 1992. The agreement authorises the collection of tolls by SRC from both Crossings until a “defined amount of revenue” (currently set at £1,029 billion in July 1989 prices) is generated or for a maximum of 30 years (whichever comes sooner). The UK Government has indicated that it expects the defined amount of revenue to be reached in late 2017 or early 2018, at which point the bridges will revert back to public (UK Government) ownership.

What’s being proposed?

Rather than abolish tolling at the end of the concession agreement, the UK Government intends to “abolish the higher price toll category for vans and small buses, and halve the tolls for all vehicles”, a move it suggests will be a “significant step” that will “make a positive difference to commuters, travellers, and to small business owners.”

The consultation proposals (PDF 559KB) include replacing the current toll of £6.70, for cars and other category 1 vehicles, with a charge of £3.00 as well applying this reduced category 1 charge to small buses and vans currently within category 2 and subject to a toll of £13.40. The toll for large vehicles under category 3 is proposed to be reduced from £20.00 to £10.00.

The proposed changes are set out in the following table:

tollprices

The payment currently required to use the Crossings is a toll which increases annually in line with inflation. The UK Government is proposing to replace this by introducing a Charging Order under the Transport Act 2000 which will “change the legal status of the payment…from a toll to a road user charge”. It suggests that this change of status will enable it to “reduce the amount users pay more easily.” During discussions in Plenary on 17 January 2017, Assembly Members expressed concerns over proposals for road user charging and its legal basis. The Cabinet Secretary for Economy and Infrastructure, Ken States, stated that it is a “very complicated and complex area of legal work” and that the Welsh Government supports abolition of the toll on an economic basis alone.

What are the predicted impacts of the proposals on traffic?

Traffic forecasts commissioned by the DfT and described in the consultation suggest that reducing tolls will increase the amount of traffic using the Crossings up to 17% by 2028.

In response to this, the UK Government is considering measures to reduce the time it takes for tolls to be collected and “ways to manage this effect, including …options for free-flow tolling and day-time only tolling”. Additional considerations include rounding the toll prices down to whole numbers of pounds and continuation of the Severn TAG system at around a 50% price reduction.

The consultation also highlights the UK Governments concerns around the impact of increased traffic congestion in Bristol and along the M4 in Wales but suggests that “reducing the tolls by 50% would allow us to assess the impact… of increased traffic flows.” In Plenary on 17 January 2017, the Cabinet Secretary for the Economy and Infrastructure commented on concerns around modelled traffic impacts noting that “there is a need to ensure that the modelling for traffic flows is accurate” and that his views on the modelling undertaken and wider community impacts will be factored into his consultation response.

What is the UK Government proposing to use Crossing revenue for?

In a letter to Assembly Members and Members of Parliament, the Minister of State for Transport, John Hayes MP, and Secretary of State for Wales, Alun Cairns MP, stated that charges collected under the proposals will not be used for “any purpose other than to support their [the Crossings] operation and maintenance, and to repay the debt incurred by the UK taxpayer to fix latent defects on the Crossings”. The letter contained a further assurance that “the Government will monitor toll prices closely with a view to further reductions if possible in the future.” These sentiments are reiterated in the consultation document which states that toll revenues “will be kept under review to see if they can be reduced further.”

What about talk of abolishing the tolls?

There has been support for abolishing the tolls completely when the Crossings revert to public ownership. A recent Motion, tabled by Mark Reckless AM proposing that the Assembly supports the abolition of tolls, was debated in the Assembly on 16 November 2016 and subsequently agreed as amended with 45 votes for, 0 against and 1 abstention.

The UK Government argues that abolishing the tolls would put the future of the Crossings at risk with estimated annual maintenance and operational costs of around £15 million. However, the proposal to continue tolling has attracted criticism from those seeking the abolition of the tolls who suggest that their continuation represents a tax on Wales that would not be permitted under existing legislation.

The Welsh Government commissioned Arup to conduct research into the impact of the Severn tolls on the Welsh economy. Arup’s report (PDF 3.48MB) (2013), states that economic modelling suggests that removing the tolls could boost the economy of south Wales through increased annual Gross Value Added (GVA) in the order of 0.48% or around £107m. Whilst the report noted that caution should be applied to the precise magnitude of GVA gains, it also indicated that the indirect effects are such that the “overall impact of the toll [suppressed GVA potential] exceeds the direct cost of the toll [maintenance and operational costs]”. However the UK Government suggest that, whilst the “prospect of removing the tolls and funding the operation and maintenance…..through the resultant increases in revenue from general taxation is an attractive theory”, there is “no guarantee that the Government would recoup the equivalent amount of lost toll revenue through general taxation.”

The UK Government also outlines a need to recover costs of £63 million it has incurred during the concession period. In Plenary on 17 January 2017, the Cabinet Secretary expressed disappointment that the UK Government is not considering writing off the debt off, as was the case for the Humber crossing, and stated that the Welsh Government opposes continued tolling. In the debate on the November 2016 Motion, the Cabinet Secretary also stated that “that the tolls should be removed at the earliest opportunity, alleviating the burden on the economy and removing the significant threat they represent to trade in a post-Brexit world.”

Welsh Affairs Select Committee report on the Severn Crossings Toll (2010) suggested that “the toll could be reduced to a fifth of its current level, to approximately £1.50 while allowing the crossings to remain self-financing”. The report recommends that the UK Government “must not be tempted to use the crossings as a ‘cash cow’”. The Welsh Government’s written response to the current Welsh Affairs Select Committee inquiry into the future of the Severn River crossings, states that the tolls should “be in the hands” of the Welsh Government and that charge free passage could provide a potential productivity boost of “over £100 million a year”.