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The UK government has taken control of British Steel after passing emergency legislation on Saturday. Business secretary Jonathan Reynolds told MPs that ministers had no choice but to act to ensure the two blast furnaces at British Steel’s flagship Scunthorpe site in Lincolnshire kept operating.
The government now faces the tricky task of running a complex and very expensive industrial operation.
Closure of the furnaces would have been a historic turning point for the UK, leaving the country without the ability to make steel from iron ore and coal for the first time since the Industrial Revolution.
How much will this cost the taxpayer?
The government has stopped short of nationalisation but keeping British Steel’s operations running will come at a considerable cost to the UK taxpayer.
Reynolds said the market value of the company was zero. But it is highly lossmaking and the taxpayer will probably have to stand behind those losses. Jingye, British Steel’s Chinese owner, said last month that the company was losing more than £700,000 a day and that it was no longer “financially viable”.
British Steel’s accounts showed that it made losses of £408mn on turnover of £1.7bn to the end of 2022. It made a pre-tax loss of £231mn in 2023. It is also heavily indebted — with debts outstanding of £736mn at the end of 2023.
Simply running the plant will be expensive given the price of raw materials and high energy costs. Import duties on steel imposed by Donald Trump’s US administration are another challenge.
On Sunday, Reynolds compared the annual losses that the government would have to cover, totalling about £230mn, to the cost of the “complete collapse of British Steel”. This, he told Sky News, would be “easily over £1bn”.
Why did the government feel the need to act?
Reynolds said that after months of negotiations with Jingye, it had become clear in recent days that the company’s intention was to cancel and refuse to pay for additional orders for raw materials.
The plant needed new raw materials delivered, including iron and coal, to prevent the furnaces cooling so much that they were unable to keep running. Turning them on again is not impossible, but it’s a costly and lengthy process.
The government is also eager to maintain Britain’s primary steelmaking capability. Closing British Steel’s two furnaces would leave the UK as the only G7 country without the ability to make steel from scratch. The move also prevented the loss of about 3,500 jobs at the company.
Reynolds said the government had offered to pay for the materials but Jingye instead made a counter-offer for ministers to pay hundreds of millions of pounds without any conditions. This offer contained no commitment to ensure the money and other assets were not “immediately transferred to China”.
People close to chancellor Rachel Reeves said she had spent the past week seeking to “drive through a significant shift in mindset of people in Whitehall” who were originally set against any move towards nationalisation.
“She couldn’t in good conscience have handed over more taxpayers’ money [to Jingye],” one of them said.
What is the future for the UK steel sector?
The move to take control of British Steel is just a stop-gap solution. Britain’s steel industry has been in decline for decades, hampered by high energy and operating costs.
The UK, said Colin Richardson, head of steel at price-reporting agency Argus Media, is “one of the highest-cost regions in the world to produce steel, irrespective of production route”. “Its blast furnace assets are old, inefficient and hampered by chronic under-investment,” he said.
The biggest challenge is decarbonisation. British Steel’s blast furnaces will have to close to help the UK meet its net zero carbon emissions pledge by 2050.
The government has put aside £2.5bn to support the sector during the transition. It last year agreed a £500mn deal with Tata Steel to help the Indian-owned company restructure and move to a less carbon-intensive electric arc furnace that melts down recycled steel.
A similar decarbonisation plan has to happen at British Steel but this will require significant investment. Jingye had asked the government for £1bn towards a £2bn plan to build two electric arc furnaces at Scunthorpe.
Switching to electric arc furnaces will preserve steelmaking but not primary steelmaking — making steel from raw materials.
Ministers also need to act on energy costs. Richardson said that while electric arc furnaces “benefit from lower carbon costs, and domestic scrap availability”, they were “no panacea without structural changes to the energy costs borne by mills”.
