Tata Steel warned court action likely over Dalzell state aid as ministers kept Holyrood in the dark

MSPs were left in the dark around the potential threat of legal action around the Dalzell steelworks deal despite warnings of ministers being dragged in front of the courts.

Tata Steel, the former owners of the steelworks, sold Dalzell to the Scottish Government in an unprecedented ‘back-to-back’ sale for £1, with the government selling the plant immediately to Sanjeev Gupta’s steel giant, Liberty Steel.

As part of the deal, Scottish ministers took on all of Tata Steel’s potential liability for all known and unknown liabilities at the site, including around environmental clean-up, costs which could end up in the millions. Ministers agreed an equivalent clause with Liberty, with the aim of ensuring the costs would not pass to the taxpayer.

However, as Liberty Steel’s parent company, GFG Alliance, began to wobble last year following the collapse of its main funder, Greensill Capital, due diligence by ministers appeared to suggest the deal broke state aid rules. This, ministers said, meant the deal was unenforceable and that the taxpayer would not be held liable for any costs associated despite the contract with Tata Steel.

New documents, obtained by the Scottish Liberal Democrats show Tata had already warned ministers of the potential for legal action and of their unhappiness with the “unilateral” decision of ministers to claim the contract breached state aid rules. The party is now calling for the business minister, Ivan McKee, to apologise to parliament for his “cavalcade of deception”.

The business minister, Ivan McKee, was first informed of a potential issue with the deal two months before MSPs were updated, but only spoke to Tata days before going public. The steel giant complained of the limited time to respond and requested an opportunity to challenge the conclusion the deal breached state aid rules.

In a letter sent to the government on December 14, 2021, the day before Mr McKee’s statement to parliament, Tata told ministers it believed a final conclusion on state aid and therefore whether taxpayers are liable for millions in environmental clean-up would have to be determined by the court.

It said: “In any event, we note that it is not within the Scottish Government’s competence to make a legally binding determination on the existence of State aid. Such a proposition would, if necessary, be a question for determination by the courts (or the European Commission) at the appropriate time.”

Business minister Ivan McKee during a Ministerial update on the Dalzell Historical Industrial sale at the Scottish Parliament in December last year.

The letter also raised concerns about the “absence of any definitive legal ruling” and around the “factors driving the apparent urgency of this process”. Minutes of a meeting with the company also stated Tata was “uncertain how SG has reached its conclusion...by considering legal advice only”.

On December 15, Mr McKee told MSPs about the potential breach of state aid but kept them in the dark about legal action concerns. He told the Holyrood chamber that Tata Steel “will need time to reflect and consider their position”.

Willie Rennie, the Scottish Liberal Democrat’s economy spokesperson, said the documents confirmed the fact Tata intend to take the government to court to “force them to pay for the clean-up costs”.

He added: “Ivan McKee told parliament last December that Tata were taking time to consider the situation. What these documents also reveal is that he had already received their answer the previous day, including the threat of legal action, he just chose not to tell parliament about it.

"This is just the latest step in a cavalcade of Scottish Government deception. The minister should come to parliament to apologise for his parade of obstructionism and set out the potential cost to the public purse if Tata follow through on their threat of legal action."

A Scottish Government spokesperson said the 2016 deal was done “at pace” and rescued more than 100 jobs, with the legal advice around the state aid breach reported “promptly” to parliament. They added this means “no money would legally have to be paid out” if the clause was ever called upon.

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