Grant Shapps and Michael Gove have informed the chancellor that the shutdown of two blast furnaces and the bankruptcy of British Steel might cost taxpayers up to £1 billion.
Ministers are pressing the chancellor to invest £300 million in taxpayer funds to prevent the closure of British Steel’s two blast furnaces, which would result in the loss of tens of thousands of industrial jobs in northern England.
Grant Shapps, the business secretary, and Michael Gove, the leveling-up secretary, warned Jeremy Hunt in a letter this month that the death of British Steel might cost the government up to £1 billion in decommissioning and other obligations.
In their letter, a copy of which was seen by Sky News, they requested that Mr. Hunt evaluate the economic case for sustaining both British Steel, which is owned by a Chinese corporation and the broader UK steel industry.
Mr. Shapps and Mr. Gove wrote, “Every other G20 nation has maintained domestic steel production, and while we do not believe that this should come at any cost, we do believe it is in HMG’s interest to offer well-designed and targeted funding that unlocks private investment, achieves a good outcome for taxpayers, and enables transformed, decarbonized, and economically viable domestic steel production to continue in the UK over the long term.
“We do not wish to become dependent on foreign steel sources in the same manner that energy security has become obvious.
In addition, our steel demand will increase by 20% due to big domestic infrastructure projects currently planned in the United Kingdom.
According to an industry source aware of the Whitehall conversations, the chancellor has directed Treasury officials to review the proposal.
The letter to Mr. Hunt cautioned that British Steel “had no viable business model without government assistance.
Mr. Shapps and Mr. Gove stated, “closing one blast furnace would lead to the shutdown of the second blast furnace, resulting in a highly unstable business model dependent on Chinese steel imports.”
“The local economic impact of closing both blast furnaces is expected to be in the region of £360m to £640m, with an additional £500m to £1bn liability for HMG through forced liquidation, insolvency, and land obligations”
“Given the magnitude of the liabilities due to falling on HMG in the event of blast furnace closure, and per the PM’s direction, we would like officials to examine whether net government support in the region of £300 million for British Steel could prevent closure, protect jobs, and create a cleaner, more sustainable future for steel production in the United Kingdom.”
In recent months, the future of British Steel, which was acquired by Jingye Group from a previous insolvency proceeding less than three years ago, has grown increasingly uncertain as the present owners have stated that they will not maintain their operations without government assistance.
British Steel employs approximately 4,000 people, with thousands more relying on the company’s supply network.
According to the letter to Mr. Hunt, British Steel has already notified the government that one of the blast furnaces in Scunthorpe could close as early as next month, resulting in the loss of 1,700 jobs.
This would be “followed by the closure of the second blast furnace later in 2023, resulting in about 3,000 cumulative direct employment losses,” Shapps and Gove wrote.
The request to Mr. Hunt followed a series of discussions between Mr. Shapps and Mr. Jingye in early December concerning the support of Britain’s second-largest steel manufacturer.
Jacob Rees-Mogg, who lasted only weeks as business secretary under Liz Truss, began official discussions with Jingye in October regarding the possibility of government funding to assist British Steel in decarbonizing.
Whitehall stipulated that Jingye would not eliminate jobs at British Steel while negotiations were underway; but, a subsequent letter to Mr. Hunt stated that governments “cannot guarantee the company will choose to support jobs in the medium term.
Tata Steel, the largest participant in the UK steel industry, has also asked the government for financial assistance.
A government spokesperson stated: “The government is dedicated to ensuring a sustainable and competitive future for the United Kingdom’s steel industry, and we are collaborating closely with the industry to accomplish this goal.
“We recognize that enterprises, especially steel makers, are experiencing the effects of rising global energy prices, which is why we introduced the Energy Bill Relief Scheme to reduce expenses.
This is in addition to the more than £800 million in energy cost assistance we have offered to the entire steel industry since 2013.
Given the magnitude of the possible job losses that could arise from a refusal to provide taxpayer aid, Jingye’s request for financial assistance poses a political challenge for ministers.
An agreement to grant major taxpayer support to a Chinese-owned enterprise will infuriate Tory critics of Beijing.
After years of international trade disputes over dumping, China’s prominence in global steel production would make any subsidies considerably more problematic.
In May 2019, the Official Receiver was appointed to assume control of the company following the breakdown of discussions for a £30 million emergency government loan.
British Steel was founded in 2016 after India’s Tata Steel sold its business to the investment firm Greybull Capital for £1.
As part of the agreement that gave Jingye ownership of British Steel, the Chinese company stated that it will invest £1.2 billion over the next decade to modernize the company.
The then-prime minister, Boris Johnson, heralded the completion of Jingye’s acquisition of the company in the spring of 2020 as ensuring the future of steel production in Britain’s industrial heartlands.
British Steel stated in the past regarding its negotiations with Whitehall: “We continue official discussions with the British government to solve the global issues we are currently facing.
“The government recognizes the tremendous impact that the economic slowdown, increasing inflation, and unusually high energy and carbon prices have on enterprises like ours, and we look forward to working with them to achieve a sustainable future.”
