British Steel Corporation
A Report on the efficiency and costs in discharging its functions of the British Steel Corporation

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Summary

On 29 November 1985 the Department of Trade and Industry sent to the Commission the following reference:

" The Secretary of State, in exercise of his powers under section 11(1 )(a) of the Competition Act 1980, hereby refers to the Monopolies and Mergers Commission (' the Commission') the question set out below relating to the efficiency and costs of the British Steel Corporation (' the Corporation') in discharging its functions, except in so far as that question relates to, or may involve consideration of, strategy decisions agreed with HM Government in relation to the Corporation.

The Commission shall upon this reference investigate and report on the question of whether in discharging its functions the Corporation could improve its efficiency and thereby reduce its costs, with particular reference to:

(a) the Corporation's methods of monitoring and controlling its operating costs within the framework of the strategy decisions referred to above;

(b) the Corporation's methods of controlling working capital employed, including its methods of stock and credit control;

(c) the Corporation's procedures for planning, appraising and implementing capital investment projects and major current expenditure projects;

(d) the Corporation's use of manpower;

(e) the Corporation's performance in marketing its products and services.

The Commission shall report upon this reference within a period of six months beginning on the date hereof.
(Signed) M J VILE
An Assistant Secretary
29 November 1985 Department of Trade and Industry"

On 3 December 1985 the Chairman of the Commission, acting under section 11, sub-section (9) of the Competition Act 1980 and part II of Schedule 3 to the Fair Trading Act 1973, directed that the functions of the Commission in relation to the reference should be discharged through a group of six members of the Commission, including himself as Chairman. The names of those who formed the group are indicated in the list of members which prefaces this report.

On 1 May 1986 the Secretary of State for Trade and Industry announced that following representations from the Commission he had agreed that the reporting period for the reference should be extended from 28 May 1986 to 28 August 1986.

Scope of the inquiry
The Commission concentrated their investigation on BSC's two largest operating groups, the General Steels Group (GSG) and the Strip Products Group (SPG), which together contain BSC's five integrated steelworks and accounted for over 80 per cent of the Corporation's turnover in 1985-86. The Special Steels Division of GSG, almost all of which was merged with the engineering steels activities of Guest, Keen and Nettlefolds PLC in the United Engineering Steels joint venture on 24 March 1986, was not included in the investigation.

The terms of reference of the inquiry precluded the Commission from considering questions concerning "strategy decisions agreed with HM Government in relation to the Corporation': these strategy decisions were announced by the Secretary of State for Trade and Industry and the Chairman of BSC on 7 August 1985 and are set out in Appendix 1.1. As these strategy decisions affect the policies and performance of BSC, from time to time in the report we have indicated where this appears to be the case.

Method of inquiry
The Department of Trade and Industry issued a Press Notice on 29 November 1985 announcing the terms of reference for the inquiry and inviting persons wishing to give evidence to write to the Secretary of the Commission. Further notices were placed in:

The Financial Times Metal Bulletin
The Times Steel Times

We invited the Department of Trade and Industry, the CBI, the TUC, the British Independent Steel Producers' Association (BISPA), the British Iron and Steel Consumers' Council (BRISCC), the Federation of British Electrotechnical and Allied Manufacturers' Associations (BEAMA), the National Association of Steel Stockholders (NASS) and a number of other trade associations to submit evidence. The TUC Steel Committee and the trade unions represented in the Corporation gave evidence and attended two hearings at the Commission. We also sought information from officials of the European Commission. A survey of customers of BSC and British Steel Service Centres was conducted and a number of BSC's large and small customers were interviewed. The evidence received from customers and trade associations is summarised in Appendix 11.1.

BSC provided much written material at our request and attended two hearings. Members of the Commission visited BSC's Head Office as well as the Ravenscraig, Shotton, Llanwern and Teesside works. Commission officials made extensive visits to works and offices within GSG and SPG (with the exception of Port Talbot, which at the time was undergoing extensive refurbishment), as well as visiting BSC Stainless and sales and research and development locations.

We were assisted by technical advice from Professor Graeme Davies, Vice-Chancellor of Liverpool University and formerly Professor of Metallurgy, Sheffield University. Arthur D Little, management consultants, assisted us by conducting a study of BSC's procurement practices.

Some of the evidence obtained in the course of our inquiry was of a confidential nature and our report contains only such information as we consider necessary for an understanding of our conclusions.

We should like to take this opportunity of thanking all those who assisted us in this inquiry, many of whom were generous of their time and knowledge. We are particularly grateful to those at all levels within BSC on whom the main burden of the inquiry fell.

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