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The UK government has engaged in a dramatic rescue of British Steel, operator of the country’s last two blast furnaces at Scunthorpe in Lincolnshire. After recalling parliament from recess to pass emergency legislation, ministers have seized control of the plant and secured iron ore and coal to keep the furnaces burning for now; at least temporary nationalisation is now likely. What is lacking is a detailed plan for what happens next, as part of a broader vision for UK industry.
British Steel’s owner, Jingye of China, wanted twice the £500mn support the government had offered to sustain the business and shift to greener electric arc furnaces, claiming this would cost £2bn. After Jingye seemed to be trying to run down the blast furnaces, ministers stepped in. Downing Street has downplayed suggestions that China was trying to “sabotage” the struggling remnants of the UK steel industry; Jingye may have played hardball in an abortive effort to extract a higher support offer.
Closing Scunthorpe’s blast furnaces would make Britain the only G20 country unable to produce “primary” steel from ore; electric arc furnaces make the metal from scrap. The debate has become muddied, though, between saving the furnaces short-term to allow a managed transition to new technology — the agreed plan for some time — and keeping them longer-term so Britain retains some primary steelmaking. Despite nostalgia and union hopes of keeping more jobs, their day is nearly done. In part, this is to do with decarbonisation; blast furnaces spew out vast amounts of CO₂. Mostly, it is about economics: the furnaces are decades old and, says Jingye, lose £700,000 a day.
In an era of US-China trade wars and geopolitical upheaval, and government plans to boost growth by building lots of houses and big infrastructure projects, trying to turn Britain’s rump steel sector into a viable business makes sense to preserve a measure of resilience. But this need not be blast furnaces. EAFs can now make most grades of steel, and Britain has a surplus of scrap.
Labour has set aside £2.5bn support as part of a steel strategy. It now needs to set out more detailed plans for British Steel and the broader sector. The breakdown of trust with Jingye means nationalisation is probably unavoidable short-term. But to secure Scunthorpe’s future, ministers must persuade a new investor to turn it into a sustainable business.
That means implementing the EAF plan with something near the £500mn grants that were offered to Jingye, and to India’s Tata Steel to do something similar at Port Talbot in south Wales. Industry insiders suggest that given such a subsidy, and a good site with ready-made customers — Scunthorpe supplies 95 per cent of steel for UK rail tracks — this should not be impossible.
To make UK steel, and indeed other energy-intensive industry, more viable the government must also act quickly to reduce industrial electricity prices that are among the highest in the developed world. This is not, as critics contend, due to the shift to renewable energy, but because wholesale prices are set by the most costly source needed to cover demand — which is often natural gas. Ministers are reviewing the market; the economist Sir Dieter Helm’s proposal to revert to the pre-privatisation model of charging industry the long-run marginal costs of energy has merit.
Rather than engage in more ad hoc rescues, the government should also set out as part of its coming industrial strategy its definition of nationally strategic sectors. That means determining where the UK needs to retain domestic production or can rely on supply chains from friends, and what proportion can be concentrated in one supplier. Steel has a claim to be an area where Britain retains capacity — though not, in the long run, through the blast furnaces for which the government has just secured a reprieve.
