British Steel: more questions than answers on the future | Nils Pratley
“One of the proudest things we have done in government,” said Keir Starmer in Monday’s big speech about the decision a year ago to recall parliament in order to take control of British Steel at Scunthorpe.It was an odd boast because last year’s action was merely an emergency exercise in saving the patient, as opposed to getting British Steel on its feet and out of the hospital.Taking control meant the Chinese owner, Jingye, could not turn off the two blast furnaces but meant the government was on the hook for operational losses, which will be £615m and counting by next month according to the National Audit Office (NAO).Full nationalisation is now on the cards, which will end the limbo-land state of ownership and give some comfort for 4,000 workers.But it is also the point at which the government will have to choose between its barely described “potential future options” for British Steel.
What’s the actual plan here? How much is it going to cost? And, by the end, will much be left from the £2,5bn promised in the election manifesto for the revitalisation of UK steelmaking?Half an answer to the first question might appear later this week if ministers confirm that nationalisation is not an end in itself but a way to enable a sale, or partial sale, to a better owner than Jingye,The list of credible suitors won’t be long but at least Sev,en Global Investments, the Czech group which owns a modernised steelworks in Cardiff, is trying to create a buzz,But the terms of any post-nationalisation sale will be crucial.
The big idea, presumably, is for the Scunthorpe site to convert over time to using an electric arc furnace, the lower carbon alternative to blast furnaces.But, since the technology takes about three years to build, one obvious question is whether the old-style furnaces will be kept running in the meantime.One assumes they will be because, if not, there would be a big hole in the UK’s freshly minted “steel strategy” and a major bust-up with the unions.Yet the price tag may be steep.Any new owner will surely want a subsidy to cover some or all of the transition losses, and a second subsidy will probably be expected to build the electric arc furnace itself.
The going rate, as it were, for the latter was set at Port Talbot under the last government when Tata Steel (which closed its blast furnace) was given a £500m support package for an overall £1.25bn investment to fund conversion.The price tag probably hasn’t fallen in the interim.Add it all up and we’re talking serious money, even before any bung to Jingye to go away quietly.The good news for producers is that the separate steel strategy, when it finally arrived in March, threw a protective cloak across the UK sector in the form of tariffs to deter cheap Chinese and Vietnamese imports.
It is possible to see how the government’s initial aim to return UK production to 40%-50% of domestic steel demand, compared with 30% in 2024, could be met.Greater volumes should improve the economics at sites such as Scunthorpe.On the other hand, tariffs are not a cure-all (and, obviously, are not universally acclaimed by UK buyers of steel).The industry’s other complaint about sky-high electricity costs has not gone away.Even with subsidy schemes such as the “supercharger”, energy costs are still higher than in continental Europe.
The government’s plans on that front are vague at best.That is the context for the next round of action at British Steel.It has taken slightly more than a year to get from initial temporary rescue to the introduction of powers to enable nationalisation in the public interest.The hard decisions, and hard numbers, only start to come into view now.The same NAO report in March warned that, if current operating conditions continue, the taxpayer bill at Scunthorpe could exceed £1.
5bn by 2028.If the government can find a way to take chunks out of that projection, while protecting jobs and steel-making capacity, Starmer would have something substantial to boast about.The job has barely started.
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