The government has set out its plans for seizing control of British Steel’s sprawling plant in Scunthorpe, Lincolnshire, from closure.
The site employs 2,700 people and is the UK’s last producer of so-called “virgin steel” — where coking coal, limestone and iron ore are mixed in a blast furnace reaching 1,650C to form molten pig iron. Blowing oxygen through the pig iron then removes carbon monoxide and dioxide to form steel.
The only other steelworks that produced steel in this way was in Port Talbot, now owned by the Indian conglomerate Tata. It closed its blast furnaces last year and is in the process of converting to electric arc furnace (EAF) production.
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How did British Steel end up with Chinese owners?
Scunthorpe’s steelworks can be traced back to the mid-19th century. It was nationalised in 1967 by Harold Wilson and put together with other similar businesses to form British Steel.
Margaret Thatcher’s privatisation crusade saw British Steel sold off to the private sector in 1988. It then merged with Koninklijke Hoogovens to form Corus Group in 1999. Corus was then bought by Tata Steel in 2006 for £4.3 billion.
Tata oversaw the group being broken up again. Its Teesside division was sold to the Thai firm SSI in 2011. That site, based on what is now called Teesworks, would collapse into bankruptcy in 2015 in a blow for the region.
The same year, Tata struck a £1 deal with the turnaround firm, Greybull, to sell the Scunthorpe site. Greybull renamed the site British Steel, but was unable to stem losses and avoid it collapsing into bankruptcy protection in 2019 — a process that was overseen by the government’s official receiver.
Other parts of Corus were sold to the metals tycoon Sanjeev Gupta, who is fighting to keep his businesses afloat.
After more than a year of protracted negotiations, the comparatively unknown Chinese firm Jingye struck a deal to buy Scunthorpe from the receivers in March 2020 — a deal that was effectively signed off by Boris Johnson.
Why are the Scunthorpe steelworks so important?
Much has been said about the importance of “virgin steelmaking” for the UK.
While on one hand the country’s ability to produce steel is important on national security grounds, on the other it is worth pointing out that British Steel’s biggest companies are not defence contractors. The company’s biggest customers are the construction, railway, and automotive industries as well as so-called yellow goods companies such as JCB and Caterpillar.
British Steel does, however, supply about 95 per cent of the UK’s rail tracks, fulfilling orders for approximately 80,000 tonnes of steel every year. Network Rail has been building up stocks of rail for some time to protect against a potential cessation of production at Scunthorpe. It said it has now stockpiled a year’s worth of its needs just in case.
The problem at British Steel has long been that blast furnace operations are uneconomic, losing Jingye approximately £700,000 a day because of high energy costs compared with plants on the European continent. For Jingye, this is not news. The business has been losing money ever since the Chinese bought the business in 2020.
What were British Steel’s owners’ plans for the future?
Officially, Jingye’s plans were to wind down production of British Steel’s two remaining blast furnaces, switching to EAF production in a similar vein to Tata Steel’s transition in Port Talbot.
The problem has been — and remains — Britain’s energy costs, which are far higher than those on the continent. Net-zero critics argue that this is due to green levies placed on energy costs.
EAFs work by melting scrap metal using electric current to produce steel. It is claimed that 90 per cent of the “virgin” grades can be produced using this method. Some experts reckon it will not be long before EAFs can deliver almost all of the grades produced by blast furnaces.
Crucially for the UK’s green ambitions, EAF production is less pollutive, resulting in an estimated 75 per cent reduction of harmful emissions.
British Steel initially struck a deal to build one EAF in Scunthorpe and a second in Teesside at an estimated cost of £1.25 billion. The Tory government agreed taxpayers would contribute between £500 million and £600 million of this investment.
But Rishi Sunak’s calling of a snap election scuppered the deal. Steel union leaders — the largest are Unite, Community and GMB — had been pushing to preserve jobs at Scunthorpe as opposed to creating new ones in Teesside.
Labour’s critics argue that Starmer’s administration bowed to union pressure, scrapped plans to split the new works across two sites in favour of a single — more expensive, they say — EAF at Scunthorpe. This appears to be borne out by the stats. The deal under discussion to switch to EAF production in Scunthorpe topped £2 billion.
So why has the government stepped in?
Rumblings that a state-backed deal could fall apart began several weeks ago when ministers offered £500 million of taxpayer money towards the £2 billion cost to convert Scunthorpe to EAF production.
Those in Jingye’s camp claimed that a £1 billion-plus-£1 billion deal was on the table. So when Jonathan Reynolds, the business secretary, stumped up with £500 million of taxpayer cash, they were incensed and announced a consultation to shut the blast furnaces with the loss of 2,700 jobs.
Jingye then ramped up the pressure on ministers by cancelling orders of raw materials such as iron ore and coking coal from the US and Japan.
Without supplies the blast furnaces grind to a halt and cannot be restarted.
The government then offered to fund new purchases of raw materials. Late on Thursday, Reynolds had been bartered up to a deal by Jingye that would have seen taxpayers pay for three months’ worth of raw materials. The logic for the government to pay for this is that it would buy more time to strike a long-term deal that was agreeable to both sides.
On Friday, however, talks over this deal fell apart and the government stepped in.
Why has parliament been recalled today?
Out of options and out of time, the government has been forced to recall MPs during their Easter holidays so that they can push through emergency legislation in a single day.
Once approved the legislation, known as the steel industry special measures bill, will immediately give ministers the power to control the furnaces at Scunthorpe. This means they will be able to secure new fuel supplies, and, crucially, it will also stop Jingye from being able to turn the furnaces off.
MPs will begin deliberating the bill from 11am, with the Lords then sitting from midday. The House of Commons order paper suggested that matters could be wrapped up as soon as 2pm — but Sir Lindsay Hoyle, the Speaker, made clear MPs will sit as long as is necessary to pass the bill.
Are MPs nationalising British Steel today?
No, but the legislation definitely paves the way for it in future. The need to take control of British Steel shows the government no longer believes it can reach a commercial agreement with Jingye.
It is difficult to see how things can be resolved without some form of state ownership. What the bill does is buy ministers time in order to work out whether they need to acquire the entire company or if they can secure investment from the private sector. The latter option would probably lead to some form of public-private partnership, or joint ownership deal.
Can British Steel be rescued and can UK steelmaking be profitable again?
It is undoubtedly within the government’s gift to rescue British Steel if it wants to do so. This could happen under the continued control by Jingye or by direct state ownership. But it would be no small undertaking. Potentially, taxpayers could be on the hook for the full £2 billion cost of switching to EAF production.
A switch to EAF production would not guarantee the site’s 2,700 jobs. EAF, or “green steel” production, has a lower carbon footprint and is also far less labour intensive. Jobs would have to go as a result if ministers sanction the shift.
And while the EAF or EAFs are being built, if ministers wish to keep the blast furnaces running, the state would have to pick up the £700,000-a-day bill of keeping them going. The government will also be mindful that blast furnace production of steel is among the most harmful sectors to the environment. When the Port Talbot works were fully up and running, they represented roughly a quarter of all of Wales’ carbon emissions.
With lower labour costs, and an embarrassment of riches when it comes to scrap metal (Britain is currently one of the biggest exporters of scrap metal in the world), switching to EAF production could see Scunthorpe return to profitability.
Clement Attlee’s decision to nationalise the steel industry in the late 1940s was controversial, not least because the sector was seen as too profitable and critical to the regional economy to be handled from London. Such was the lucrative nature of steelmaking, the Tories reversed this decision in 1951, returning the sector to private hands.
Whatever the future holds for steelmaking in Britain, the golden era of production in the post-war years is unlikely to return.
