Bill Jamieson: Between a rock and a hard place over steel

GOVERNMENT claims that '˜all options are open' over moves to secure UK steel production fail to acknowledge some stark realities says Bill Jamieson

Steel making is a key strategic industry, governed and coloured by national and international considerations. Picture: Getty Images
Steel making is a key strategic industry, governed and coloured by national and international considerations. Picture: Getty Images

Steps to save the future of steel-making in Britain are fraught with danger for the government. It is trapped in a complex mesh of tripwires running in all directions.

Consider these: is steel making (and processing) a strategic industry that the government must support?

Should tariffs be imposed on imported cheap Chinese and Russian steel?

If so, was the UK government right to oppose EU moves that would have enabled tariffs on Chinese steel to be raised? Why did it do so?

Should the UK government follow Scotland’s example in doing a back-to-back deal over the steel plants in Cambuslang and Motherwell?

Should EU state aid rules be waived over UK government involvement in any rescue of the Port Talbot steel works? And should those EU state aid rules forbid the UK government from specifying that UK infrastructure projects buy UK steel?

Should other industries also have their green energy tariffs rebated, or should this apply to steel alone?

Are there any rules governing the waiving of business rates? Or should business rates be waived at political discretion?

Business minister Anna Soubry said on radio yesterday that “all options are open”. Is that really true? Is it not more true to say that very few options are open, and that this is the government’s real problem?

Many sensitive questions are begged by the Port Talbot crisis over the fundamentals of UK trade and economic policy.

Should the government intervene to take the plant into state ownership?

YES: Steel is of strategic importance and vital for just about everything we use. Whether it is buildings, clothes, chemical, cars, lamps or drinks cans – all depend on it. So this is not just a crisis for the steel sector, but one affecting UK manufacturing in general and accounting for some 10 per cent of UK economic output.

Almost 20,000 are employed in the steel sector, and more than one in six are now either losing their jobs or at risk of losing them. But besides the job losses already announced – and the 4,000 now at risk in Port Talbot – there will be an impact in other allied sectors – on steel processors, distributors, scrap metal dealers, metal traders and other metal product manufacturers.

NO: Steel’s decline has been remorseless and long pre-dates the outcry over China dumping. It was once a major UK industry, employing 320,000 at its peak in 1971. Indian firm Tata, Britain’s biggest steel producer which employs around 17,000 in the UK, says Port Talbot is losing £1 million a day, and that the industry is beset with a global downturn, steel over-supply and Russian and China dumping in particular. Taxpayers would face a huge – and uncapped – liability.

Should the government do more to clamp down on China dumping?

YES: China’s steel makers are understood to receive subsidies worth around two-thirds of the cost of production, making it impossible for our domestic industry to compete. The European Commission has been agonisingly slow to take action and the UK government should press for tougher response. But a proposal to remove an EU rule limiting the punitive import duties that can be imposed on Chinese producers was blocked by the UK. Steel industry groups have called the decision “galling”, and say under the “Lesser Duty” rule the tariff on China imports should be 66 per cent not 9 per cent as currently.

NO: The Prime Minister’s office defended the move as a refusal to engage in “protectionism”. Many steel consuming businesses such as car makers, engineering groups and housebuilders benefit from low-cost Chinese steel – as did the Scottish government which opted for Chinese steel on the new Forth crossing. And there is the risk that once protectionist measures are adopted for one industry, others will demand similar protection.

There are also wider issues – the UK’s growing dependence on China’s goodwill. It is already a substantial investor here, and the UK government is critically dependent on Chinese investment in nuclear power. China has recently agreed to take a one-third stake in the project to build a new nuclear power plant at Hinkley Point in the UK and to take shares in two further plants. All this may be working to stay the UK government’s hand.

Should the UK follow Scotland’s example with a “back-to-back” deal?

YES: Under this the Holyrood administration agreed last week to sell on the works and staff at the two North Lanarkshire plants being sold by Tata to Liberty House. It should save most though by no means all of the 270 staff employed. Closure has been averted and continuity assured.

NO: Or at least until more is known. This “back-to-back” deal is unusual, full details have not been disclosed and these matter because the Port Talbot operation is many times bigger and we have to be sure taxpayers will not be on the hook for full ownership should a deal with a buyer fall through. The Scottish deal also involved cutting business rates and £195,000 to keep key workers on standby.

Should the government defy EU rules on state aid to keep Port Talbot in operation?

YES: Strategic interest is involved (see above). EU competition commissioner Margrethe Vestager argues that these rules are needed to prevent “a harmful subsidy race between member states” and that the proper way of dealing with Chinese imports was through anti-dumping laws. But so far, the hefty levies the industry has demanded have not materialised. As it is, the prospect of the UK government being seen to sacrifice thousands of jobs to comply with EU regulation would be politically damaging just ahead of the EU referendum.

NO: We should not proceed by law-breaking. Any defiance by the UK would be legally challenged. And the omens are not good: the EU Commission has recently demanded that the Belgian government claw back around £162 million previously handed out to plants owned by the Swiss steel conglomerate Duferco. The money was provided by the regional government in Wallonia, but it failed to prevent the group mostly pulling out of the country.

The Commission has also opened an investigation into around £1.5 billion said to have been given by the Italian government to Ilva, Europe’s third-largest steelworks, said to be focused on support for the renovation of the company’s plant in Taranto, which came via loan guarantees and money recovered through criminal cases against former management. A waiver for the UK would bring demands for these cases to be re-opened.

Was the government right to waive green industry tariffs for steelmakers?

YES: Though the government had first to get permission from Brussels to rebate green levies on energy bills. This insidious levy has further added to industry costs.

NO: We must constantly drive forward on curbing fuel emissions. Downing Street is strongly committed to this.

All options being considered by the government? Not as many as it likes to let on. But more modest measures such as business tax reliefs and help by way of cheap loans would be merited.