AMID high drama, Parliament voted a couple of weeks ago voted to take control of British Steel to keep the Scunthorpe blast furnaces going. Running out of fuel – coking coal – would almost certainly damage it beyond economic repair and because of fears that this would happen the House was recalled on a Saturday. (The last time the House sat on a Saturday was in 1982 when it discussed the rather more momentous Argentinian invasion of the Falkland Islands). Adding to the melodrama, the Royal Navy was alerted to escort a coal carrier into port. In a depressing display of near unanimity (the point of an opposition is to oppose) the House agreed that Scunthorpe should be ‘saved’.
Congratulations! You’re now about to be on the hook for British Steel.
The legislation is now in place for UK taxpayers like you and me to control and, if necessary, own two old blast furnaces. The UK remains able to produce primary steel in bulk (sort of). In the interim the Secretary of State is in control, having hired an industry veteran to be CEO. That’s reassuring; making steel is complicated. For details, see my full-length article on my Substack here.
The Scunthorpe plant blast furnaces have a nominal capacity of 3million tons a year, enough to satisfy just half the UK’s demand. The rest we import from overseas, the top sources being Turkey, Germany and Spain who between them provided 30 per cent of the 5.4million tons we imported. India sent us 6 per cent and China just 3 per cent. Those portraying Scunthorpe’s demise as a Chinese threat to the UK are, at best, overstating Chinese influence on the UK’s steel supply.
Because of the type of steel made at Scunthorpe, saving the plant has absolutely nothing to do with securing defence infrastructure. It’s about retaining a manufacturing capability that can’t make a profit in the current marketplace. If that sounds familiar, it is – the Tata-owned blast furnaces in Port Talbot closed last year for similar reasons – they were losing money.
Scunthorpe’s blast furnaces are old and will need replacing or extensive refurbishment at some stage. That’s not cheap, particularly in the UK where emissions are expensive. The current owner, Jingye, was planning on closing them and replacing them with electric arc furnaces. The UK has some of the most expensive electricity in the world. If it’s cheaper to use electricity than coal (in the form of coke) to make steel, the emissions costs must be astronomic.
That’s no surprise, making one ton of steel in a blast furnace produces over two tons of CO. Emissions pricing is complex as the UK operates its own emissions trading scheme but is in the process of re-joining the EU one. The detail is complex but the current price is £41.84 per ton of CO2, over £80 per ton of steel. That’s an awful lot on a product whose price is falling to £300 per ton (low grade rebar). Even the higher grade coil steel sells for just £600 per ton. In this environment it’s far from surprising that British Steel lost £227million in 2023.
How is it that EU steel makers can deliver a profit and Scunthorpe can’t? Because the EU subsidises them, lavishly. For example Thyssenkrupp just got €2billion to build a new factory. By comparison the UK’s Steel Strategy is considering £2.5billion for the entire steel sector. Across the EU the total subsidy was €15million in the past six months alone.
The steel manufacturing playing field is not level; it is distorted by subsidies and, like European agriculture, is far from a free market. Scunthorpe is in an unenviable position as it must import all its raw materials. Worse, there is oversupply in the global steel market and China, the world’s largest steel manufacturer, is culpable for this, among others. British Steel’s capital costs are high, as are its energy costs and emissions costs. Building a compelling business case to manufacture steel in the UK is a challenge. If (or when) British Steel is nationalised we’re on the hook for its losses. The government may be searching for another buyer but the global supply of fools with money and an interest in making steel in an ageing plant is tight.
The pragmatic business solution is simple. Scrap the furnaces, build steel warehouses and import virgin primary steel as required from reputable suppliers. Maintain a strategic reserve, play the markets. Keep processing steel in existing plants and find some way of feeding the Scunthorpe manufacturing facility with liquid steel so that it can continue its other operations. That’s pretty much what Jingye proposed, according to their most recent accounts (to December 31, 2023). Indeed they had invested £103million on such a plan.
Parliament has a different vision of Scunthorpe’s future, but it’s not clear what it is. MPs hate emissions, so they must hate the blast furnaces that they have just ‘saved’. They claim to be securing production, but Scunthorpe relies heavily on imported fuel and feedstock. Political posturing is no substitute for clear policy.
Retaining steel-making makes sense only as part of a policy of reindustrialisation and that’s far from quick, cheap or straightforward. It would involve reopening coal mines, iron mines and a massive increase in rail and road infrastructure. Finding and training the workforce would take time too. It’s not necessarily a bad idea; it may be a good one. But it’s not a policy best decided by a short-notice Saturday afternoon debate.
In the foreword to his department’s consulting document from which it hopes to develop a strategy for steel, the Secretary of State for Business, Jonthan Reynolds wrote: ‘…For example, it is estimated that offshore wind alone will require 25 million tonnes of steel – primarily plate steel – out to 2050. This represents a potential £21billion market for UK steel.’
Scunthorpe doesn’t make plate steel.
Other British steel works (that is, British-owned steel works located in the UK, not the Chinese-owned British Steel ones) do. For example Liberty Steel Dalzell, but they don’t use blast furnaces and so are dependent upon electricity, which net zero makes ever more expensive. Whoever is developing the windfarms will be keen to get the lowest priced steel they can find. That might well not be from the UK. (The steel plate also needs shaping, joining, fitting out, painting and transporting to the installation location – the price of steel is just one factor in determining which is the lowest cost option. Making stuff from scratch is complicated almost beyond belief).
The UK de-industrialised in the 1980s for a variety of reasons. The Treasury could not afford to invest to modernise decrepit production lines, unionised workforces destroyed productivity through strikes and the state owned industrial monoliths were unable to adapt quickly in a world that was speeding up – in part due to the increasing capabilities of computers. In part de-industrialisation was inevitable, driven by the rise of cheap to operate industrial robots and, through globalisation, the availability of cheap labour in countries with softer and therefore cheaper environmental legislation. Much of UK manufacturing could not compete.
To replace the employment and national income the UK was to climb the value chain, specialising in generating Intellectual Property and (especially) delivering finance. We were to become a service-based economy.
That worked, sort of.
Skilled steel workers, shipbuilders and coal miners were less than chuffed about becoming call centre operators, particularly when those jobs shifted to India. Supply chins became longer and the UK became even more dependent upon trade and shipping to survive.
It was thought that it didn’t much matter as the balance of trade remained positive, with the UK’s surplus in services cancelling out the deficit in manufactured goods and food. Which, as the chart below from Trading Economics shows, it did. Sometimes. Notwithstanding the spikes round 2020 (presumably related to Covid) the UK’s balance of trade seems in steepening decline.
That matters. Money spent abroad is lost to the economy and therefore represents a lost opportunity for the economic growth that we desperately need. Presumably the hope is that ‘saving’ Scunthorpe will reduce the UK’s net steel imports, thereby retaining the revenues in the UK. That makes sense, although of course if British Steel can’t operate its blast furnaces profitably (and it’s struggling to) tax or government borrowing will have to increase to cover British Steel’s £250million a year losses. That won’t stimulate growth.
Scunthorpe employs some 2,700 workers. Keeping them from joining the 1.6million unemployed and/or the 9.2million economically inactive works out at £93,000 per Scunthorpe job. That level of cost can only make sense as part of a wider strategy to rebuild British industry and with that employment and exports. That would deliver economic growth, restoring the country’s finances and delivering an attractive future for the nation. Is it possible?
Making stuff required factories and supply chains, much of which will inevitably be overseas where the raw materials are. That’s not a bad thing; it’s the basis of trade. Provided the work done in the UK adds value that is recognised by customers who are prepared to pay enough for the UK firm to make a profit, it is a good thing. If some of those customers are overseas the price they pay for the finished steel products should offset the value of the imported coking coal, iron ore and other metals.
Of course, there’s no point making stuff if customers won’t buy at a profitable price. Wise governments realise that they don’t have to figure out what they’re going to make where; that’s what the private sector does. The wise government sets out to make the UK a desirable place to build a factory through a combination of a low cost base, a benign tax regime and a skilled workforce.
Unfortunately successive governments of all flavours have increased costs, most notably through net zero and now through employers’ national insurance. The corporation tax regime is uncompetitive and courtesy of a rotten educational system, skilled workers are rare and expensive.
A wise and credible government could axe net zero immediately. This one is in thrall to Ed Miliband’s lunacy. The current Chancellor has not raised Corporation Tax rates (yet) but her increase in employers’ National Insurance is staring to bite companies, hard. Lord Gove got close to fixing the education system, until the blob got its vengeance. Today’s counterpart, Bridget Phillipson, is doing her best to unwind his reforms.
So the UK is not an attractive place to do business and that is getting worse. Add in weak infrastructure, a housing shortage, rising crime and a disgruntled society and one can readily understand why businesses are leaving the UK as well as millionaires. While many of the causes of the UK’s current economic woes predate this government, they’re the ones in charge. To date they have done little to reverse the national decline and a fair bit to accelerate it.
Ultimately whether British Steel survives, thrives or dies will be determined by the marketplace, not wishful thinking in Westminster.
This article appeared in Views From My Cab on April 21, 2025 and is republished by kind permission.
