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The Guardian - UK
The Guardian - UK
Business
Nils Pratley

Labour’s plan for steel is a work in progress. Port Talbot was almost the easy part

View of a steel production plant
Tata said it was losing £1m a day, seemed determined to close both old-style blast furnaces on the site, and held a strong hand in the negotiations. Photograph: Toby Melville/Reuters

It was “a bad deal” for workers, taxpayers and the steel industry, insisted Jonathan Reynolds when he was in opposition at the start of the year. You can see what the business secretary, as he is now, meant: £500m of state aid for Tata Steel at Port Talbot to build an electric arc furnace to produce greener steel did not obviously scream “bargain” when the company would simultaneously be shedding 2,500 jobs.

The question, though, was whether it was the best deal that could be done in tough circumstances. Tata said it was losing £1m a day, seemed determined to close both old-style blast furnaces on the site, and held a strong hand in the negotiations. The UK still needs a steel industry in the age of decarbonisation and the hard reality is that no company is ever likely to invest in large-scale cleaner technology without a heavy helping of public money.

Those facts of negotiating life show in the final version of the deal. Yes, there is an improvement, because redundant workers will get better terms – 2.8 weeks of earnings, rather than the original 2.1, for every year they have worked at Tata – and the retraining package has been boosted. Yet headline arrangements remain as they were: the government will still provide £500m in subsidies for the £1.25bn new electric arc furnace, due to open in 2027 or 2028; and the second blast furnace will still close this month. The grand total of jobs saved between the two deals looks to be only about 100.

Thus Reynolds’s claim that his deal “does what previous deals failed to do – give hope for the future of steelmaking in south Wales” rests heavily on the notion that Tata will be back for follow-on investment in new steel-making capacity and downstream operations. There were warm words from both sides on that score – and, to be clear, the new government’s manifesto promise to invest £2.5bn in the steel industry provides a mechanism for such deal-making. But the actual formal commitment is only for Tata to “evaluate” new investments. Sunny visions of south Wales cranking out green steel for windfarms in the Irish Sea are many years away from becoming reality.

Attention, then, turns to how the government will deploy its arsenal of funding for steel. Come back in the spring to hear the full strategy, which is the point at which one can properly judge the credibility of the mission to “reverse the industry’s stagnation” and create “a bright and sustainable future”.

Before we get to the spring, however, the next crisis may have arrived at Scunthorpe, where Jingye, the Chinese owner of British Steel, is reported to be threatening to close its blast furnaces by the end of the year. That negotiation looks several degrees harder than the one with Tata; Jingye simply doesn’t have the same business and cultural ties to the UK.

It would also be make-your-mind-up time for Reynolds because, after the Port Talbot blast furnace closures, British Steel represents the UK’s entire capacity to make primary steel from coal and iron ore. The cleaner electric arc technology uses recycled scrap, with top-up quantities of ore to improve the range of products. Here’s what Reynolds said in that same speech to trade body Make UK in February: “I have real concerns that by the end of this parliament, we could be the first developed nation without the ability to make primary steel.”

Is he prepared to swallow those concerns over the UK’s capacity to make steel from scratch (concerns which aren’t shared by everybody, it should be said)? And, if not, what could he actually do at reasonable cost to the public purse? That’s the thing with steel: problems, from energy costs to international competition, never cease. The immediate future at Port Talbot is clearer after Wednesday’s deal, but harder questions remain for Labour.

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