CAB129-36 — Page 608

Printed for the Cabinet. September 1949

Page 60829g62

SECRET

C.P. (49) 195

28th September, 1949

CABINET

Copy No 31

IRON AND STEEL BILL: HIVING OFF

MEMORANDUM BY THE MINISTER OF SUPPLY

1. At the meeting of the Socialisation of Industries Committee on 27th July last my Memorandum (S.I. (M) (49) 42) on the proposed splitting up of Dorman Long & Company, Limited, with a view to the retention by private enterprise of the structural engineering and chemical activities, was considered (S.I. (M) (49) 10th Meeting, Minute 4), and there was agreement that the issues raised were of such importance that they should be settled by the Cabinet.

2. The Bill takes over the 96 named companies (together with their sub- sidiaries) which are most extensively engaged in the basic sections of the industry, but the activities of these companies and their subsidiaries range extensively into end- and by-products. The Bill contains complex provisions to secure that each entity which passes to public ownership is reasonably comparable with that existing in October 1948.

3. It was always our intention that certain of the activities of these com- panies, which were far removed from what is normally understood to be within the iron and steel industry, could be hived off either by the new Corporation or, with my consent, before they vested in the Corporation. I stated the Government's policy in the following terms on Second Reading :

"The Government have no desire to stand in the way of the normal development of the industry, and if any company has sound plans for dividing itself up between iron and steel and related activities on the one hand and clearly unrelated activities on the other, I shall be prepared to consider such proposals sympathetically if, and only if, it can be shown that the two parts are independent of each other, that each will be a viable unit and that there are good economic reasons for separation."

4. In general, the industry has set its face resolutely against the breaking up of integrated undertakings where that integration had taken place for sound technical reasons, and in the relatively few applications which I have received it has generally been possible to reach a solution which is fair to the shareholders and would not be embarrassing to the new Corporation.

5. The Dorman Long application is in a different category, both because of the size of the company itself, and the relative importance of the business which it is proposed to split off and retain in private ownership. By a series of amalgamations during the last two generations, the company is now the largest single producer of pig iron and of steel ingots and of rolled steel products; it has extensive iron ore and limestone interests, and chemical by-product activities in association with the National Coal Board and I.C.I. In addition, the company, both under its own name and through its subsidiaries (Teeside Bridge and Engineering Company, and Redpath Brown & Co.), is responsible for some 25 per cent. of the structulofaeering industry in Great Britain Page per8ce63 15 per cent. of the group's structural output is now being exported to various

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parts of the world for erection in the name of the parent company. subagdiangktructural engineering companies in Africanan South America, and while the parent company can exercise control, a minority of the equity capital is held locally; the company operating in South Africa is particularly flourishing, and while most of its steel is purchased locally from the nationalised South African Steel Works, it can draw upon the experience of the parent company.

6. The structural engineering and chemical sides are physically distinct, and I am satisfied that there would be little difficulty in agreeing an appropriate division between them and steel-making proper. Roughly the proposal involves two-thirds of the business passing to public ownership, and one-third remaining in private ownership. I am satisfied, too, that the reason why the company is in the structural engineering business at all was its desire in the 1920's and 1930's to obtain an assured outlet for its own steel products in a highly competitive market open to the whole world; for example, the company, without any previous experience in bridge works, tendered for and obtained the Sydney Bridge contract primarily to keep its mills going. Its success with the Sydney Bridge and subsequent contracts has given the firm a world-wide reputation which rests in the eyes of foreigners on its credit as engineers rather than as steel makers.

The arguments in favour of authorising the split may be summarised as follows:-

7.

(a) Structural engineering is not commonly regarded as part of the iron and steel industry, which it is the purpose of the Bill to nationalise, and refusal of this application might invite the criticism that the Government were using the Bill to secure public ownership of a substantial proportion of quite a different industry.

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(b) The economic and competitive factors which induced a private firm of steel makers to obtain an assured market would not apply when the industry is publicly owned; in so far as the new Corporation gave any preference in supplies to the Dorman Long group, there would be infringement of the non-discrimination provisions in the Bill.

(c) There is some risk that the overseas business of the group, and particularly that of the African subsidiary, would suffer through prejudice against an agent of His Majesty's Government operating in competition with local enterprise. There is little advantage in public ownership of the overseas companies as an outlet for British steel, as they now buy this steel only when it is locally competitive with foreign supplies. (d) Structural engineering contracts, both at home and particularly overseas, where civil engineering work is frequently included, are speculative, and require flexibility, devolution of managerial responsibility and freedom in negotiation; the new Corporation might not wish, or be best fitted, to be involved in the complexities of public works contracting in many parts of the world.

8. The arguments against approval are-

(a) In the rehabilitation of our economy at home, the structural engineering industry is of importance and ownership of one-quarter of that industry would enable the Corporation to exercise a powerful influence over its policy, in price, design, and economy in steel consumption. (b) New developments in steel design are constantly taking place, and there would be some technical advantage in maintaining a close liaison between the steel producing and steel consuming activities of the Dorman Long group (but common ownership is not imperative to this end). (c) The Bill deliberately seeks the acquisition of companies as they stand; the Dorman Long organisation has proved itself good for private enterprise, and there is no doubt that some damage would result from breaking up this well integrated and smoothly working organisation.

9. While Dorman Long's control 25 per cent. of the structural steel industry in this country, other steel companies between them control a further 5 per cent. If the Dorman Long proposal were approved, similar approval would probably

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