British Steel nationalisation: what went wrong, and what happens now?
Four queens – blast furnaces named after Anne, Bess (Elizabeth), Victoria and Mary – loom over the British Steel works at Scunthorpe.Within days the queens could be under public ownership, after Keir Starmer on Monday promised legislation to nationalise the plant.“Strong nations in a world like this need to make steel,” Starmer said on Monday in a speech.The prime minister was hoping decisive action would fend off challenges to his leadership.It comes 13 months after the government recalled parliament for a historic Saturday sitting to ram through legislation to take control of the steelworks.
Jingye Steel, a Chinese company, has remained the nominal owner, but with government officials at the helm.Nationalisation, expected to be included in Wednesday’s king’s speech, would be the latest stage in the tortuous history of the plant.The first iron ore was discovered in Scunthorpe in 1859 by a local landowner, helping Britain’s steel industry to become the largest in the world in the late 19th century.The industry had been in and out of public ownership – nationalised in 1951, privatised two years later, nationalised in 1967.UK steel production peaked in the 1970s, but it started to struggle before Margaret Thatcher’s government slashed jobs and plants, and privatised the remainder again in 1988.
At first British Steel was a member of the FTSE 100.Ownership of the Scunthorpe steelworks eventually passed in 2007 to India’s Tata Steel.In 2016 Tata sold the works – by then heavily loss-making – to Greybull Capital, a private equity group, for only £1.Greybull revived the British Steel brand, but then walked away in 2019, before the Conservative government brokered a takeover by Jingye.The Scunthorpe steelworks’ long history is still relevant to its problems now.
Two of the blast furnaces were first built in 1938, with the second pair following in 1954.They have been upgraded many times since, but the consensus in industry is that the two queens still operating have reached the end of their life.At the same time, the rise of China’s economy has upended the industry, flooding the global market with cheap steel and putting enormous pressure on companies around the world.That has left private sector owners struggling to make profits with assets that have been increasingly vulnerable to outages.British steelmakers have also persistently argued that they must pay higher energy costs than other European economies, let alone China.
Jingye made some investments after taking control, but it, too, found it impossible to turn a profit.Under Jingye’s ownership, British Steel lost a cumulative £350m, according to accounts up to the end of 2023.After years of stop-start negotiations over state aid to upgrade the plant to electric arc furnaces, Jingye last year threatened to walk away and leave the blast furnaces to fall into disrepair.The Labour government, elected less than a year before, could not stomach the prospect of 2,700 job losses in an industry it had promised to support.The government also insisted that it needed to preserve “primary steelmaking” – the ability to produce steel from iron ore.
That is part of a broader concern with national sovereignty amid rising international tensions.Last year’s legislation locked Jingye out of Scunthorpe, but left it with economic ownership.That gave it leverage in talks with the government.Jingye demanded up to £1bn to repay debts.However, the government refused on the basis that the actual value of the steelworks is much lower.
The government said “it has not been possible to agree a commercial sale with the current owner” after Jingye rejected a £100m offer.However, Jingye may still receive a payment to compensate for the expropriated asset – in part to assuage concerns of other foreign investors into the UK.It is understood that an independent valuer would be appointed to determine what compensation, if any, is payable.The government appears to think British Steel – which employs 4,000 people across the business – may have a future supplying the UK market, after putting up protectionist tariffs of 50%.The government wants to “bolster economic resilience by meeting up to 50% of UK steel demand domestically”.
Michael Flacks, a Manchester-born turnaround investor, and the Czech group Sev,en Global Investments have indicated they may be interested in buying it,But what will replace the blast furnaces? The business secretary, Peter Kyle, has backed a shift to cleaner electric arc furnaces – likely with hundreds of millions of pounds more in government subsidies to build them,That could provide a long-term future for Scunthorpe, but it would only preserve jobs in the short term if a new owner commits to keeping the blast furnaces open during the transition,
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