The UK steel industry is in crisis after the Indian conglomerate Tata has announced its decision to sell its UK steel manufacturing operations. The news which broke earlier this week comes after marathon talks by trade union representatives in Mumbai to save the Tata steelworks in Port Talbot in Wales. Tata have said the decisions comes after the Port Talbot was losing £1 million a day for 12 months and that the UK steel division was unprofitable.
This decision to sell its UK steel operation puts over 15,000 jobs across the country at risk, with 4,100 at the Port Talbot plant alone, if a buyer cannot be found. The Times has reported that the figure could be considerable higher if the supply chain and businesses which depend on Tata’s steel operations. Indeed, estimates of up to 15,000 jobs in the Port Talbot area alone could go as a direct result of the steelworks closing.
This sale is the latest crisis to hit the UK steel industry since the closure of the SSI plant at Redcar on Teeside making nearly 3,000 steelworkers unemployed late last year.
The fear in government is that Tata will choose not wait for a buyer and instead close the plants. As of yet the company has refused to deny this claim, with government ministers scrambling to come up with a solution. The Business Secretary Sajid Javid has faced sharp criticism for his handling of the crisis and was ordered back from a trade mission in Australia yesterday to deal with the crisis. It has also been reported that he took his daughter with him on this trade mission, adding to the criticism of his lax handling of the crisis.
The Prime Minister today ruled out renationalising the industry and said the government was doing all it could to assist UK steel, possibly in the form of loans. The government will have to be careful as the UK is subject to EU legislation which is strict on state aid to ailing industries. However, in a cautious tone, the Prime Minister did tell BBC News that there is no guarantee that the state would be able to solve the crisis.
However Labour, the trade unions and workers have strongly criticised the government’s approach. John McDonnell, Labour’s shadow Chancellor called for the government to renationalise the industry, if a buyer could not be found. Furthermore, Jeremy Corbyn has asked for parliament to be recalled with a petition he has created gaining more than 100,000 signatures on the official government website. The government will now have to respond to the petition.
The issues in UK steel have been growing for several years due to a global oversupply of steel mainly manufactured in China. This steel glut has meant it is not cost-effective for business to manufacture steel in the UK as China undertakes a policy of dumping steel, well below the cost price, in Europe.
UK steel output declined by 10 per cent last year. In Germany, over an equivalent period, steel output only contracted by 1 per cent.
There were moves last year to increase the tariffs on Chinese steel to protect European producers from Chinese dumping, however, the increase did not occur. The UK voted against the move to increase the tariff which has provoked awkward questions for the government. Indeed with news that one of China’s largest steel manufacturers is going to ramp up production, the glut is only likely to get worse.
As a result of the global oversupply of steel, the price of steel has plummeted. UK steel output declined by 10 per cent last year. In Germany, over an equivalent period, steel output only contracted by 1 per cent. Analysts have said that is due to decades of underinvestment in the industry coupled with the oversupply issue creating a perfect storm for the UK steel industry. Furthermore, high green taxes, designed to penalise heavy polluting industries and the high cost of energy have also contributed to this situation according to analysts.
What can the government do?
Given the widespread public concern over the steel industry, the issue has become both political and economic. The Conservative party usually favours limited intervention in economic matters, preferring to leave it market forces. Under this system, the steel industry would like decline further due to the unprofitable nature of UK steel at the moment.
However, this is politically toxic in the current climate. After the budget was decried as unfair and Iain Duncan Smith’s resignation, the Conservatives will be desperate to seem like they are doing all they can for UK steel. Several Conservatives, such as Peter Lilley, have today broken ranks and stated that given the highly important nature of steel to the manufacturing sector of Britain, the government needs to do all it can to save the industry. Lilley, who was talking to BBC Radio 4’s The World at One programme, suggested that even nationalisation of the industry should be considered, as if the Tata plants close, Britain would be the largest industrial nation to not have its own steel base, which in his words is vital to the manufacturing sector.
if the Tata plants close, Britain would be the largest industrial nation to not have its own steel base
The main options open to the government are loans to an new buyer, this means the government can keep out of the industry whilst seeming to support it but it depends on a buyer being found. The estimated cost for Port Talbot alone is £300 million which would place a huge burden on Osborne’s already stretched budget.
Furthermore, the government could change the procurement process for government contracts, meaning that UK steel manufacturers would get priority over others countries for providing steel for government contracts. This already occurs in other EU members states, the change would have to be carefully managed so no legal challenge could be launched against this plan.
Another option is for the government could recall a vote at an EU level to raise tariffs against China. Despite only losing 1 per cent of output, the German economic minister has written to the EU Commission to demand action to protect European manufacturers facing unfair competition meaning Britain would have allies if it were to do this. Indeed, a spokeswoman for the EU Commission told BBC News that EU officials have already contacted the UK government to see if any assistance can be provided.
Two other options existed but it is unlikely that the government would enact them, as they were ruled out in the case of the Redcar steelworks. The first option is direct state subsidies, this would be difficult as EU legislation is incredibly strict on this, but theoretically the UK could defy the EU and grant support. Indeed, several EU member states such as Belgium and Italy are accused of providing subsidies to their steel industries and could face fines by the EU. However, the fiscal orthodoxy of the Chancellor George Osborne means this is highly unlikely to happen.
The second option, which the Prime Minister has already ruled out, is full nationalisation. Today both the Labour and Liberal Democrats have come out and said that the government must be the investor of last resort, meaning the Tata steelworks should be taken into state ownership. However, this would be an ideological anathema to the Conservatives and would mean taking on responsibility for the industry something no government will want to do.