back to top

What On Earth Is Going On With Tata And The British Steel Industry?

Thousands of jobs are at stake after Tata Steel announced it wants to sell off all its UK plants. This is how an entire British industry reached the brink of collapse.

Posted on

Tata Steel, the UK's biggest producer of the metal, has announced it wants to sell its entire UK operation because bosses at the Indian company believe there is next to no hope of the industry recovering.

The company has already closed down or axed hundreds of staff from some of its UK factories but today is the first time bosses have said they want to leave these shores for good, putting the "for sale" sign over the vast factory gates.

All eyes are trained on Port Talbot, the Welsh town that has one of the biggest steel mills in the country, where 4,000 workers and 3,000 contractors could lose their jobs – not to mention the thousands of businesses who rely on the factory indirectly to sell them everything from spare parts to lunchtime sandwiches.

The government is saying it is doing everything it can to save jobs, with unions calling on ministers to prop up the business until a buyer can be found – in the same way Royal Bank of Scotland and Lloyds Banking Group were given bailouts during the financial crash.

Here, BuzzFeed News attempts to trace how the crisis came about.

So how did we get this to this point?

The problems in the steel industry really came to the fore after the 2008 crash, which sent production levels around the world tumbling.

Banks were fearful of lending money, and businesses did not want to start big projects – that require steel – during such uncertain times.

Many hoped China could be the beacon of hope for the industry, as growth in the country remained relatively stable. However, the Chinese economy has slowed in the past year, and the country's own cheap production of steel has flooded the European markets.

It means the average price for a tonne of steel has dropped from around €600 to just €350, helped by Chinese steel imports to the EU rising from 4.5 million tonnes to around 7 million last year.

Admittedly, there have been problems in the industry before, with around 20,000 jobs going since 1997. There are now around 20,000 people employed directly in the steelworks sector, from highs in the 1970s of 200,000.

Advertisement

How bad is it?

Tata has already laid off 1,000 workers in January from Port Talbot to stem its losses, along with jobs going in Scunthorpe, Rotherham, and Stocksbridge. Jobs also went in Cardiff at rival firm Celsa's plant and Caparo Industries went bust with another 1,700 jobs under threat.

Last year saw the closure of the Redcar works, with 2,200 jobs going and the local recruitment agency for the town going bust just a few weeks later.

So what's the government going to do about it?

The talk on Wednesday has been dominated by calls from some for "temporary nationalisation" of the industry, with business minister Anna Soubry saying "all options" are on the table. That would be an extraordinary move by a Tory government, and business secretary Sajid Javid, who is cutting short a visit to Australia to return to the UK because of the crisis, all but ruled out full-scale nationalisation. But he confirmed all options were being looked at and acknowledged that some form of government support may be necessary.

The government could step in and prop up the company – which is losing around £1 million a day – with cash until a buyer can be found.

Something similar has already happened in Scotland, where Tata's Motherwell and Cambuslang steel factories were sold on with help from the Scottish government.

Unions also want business rates – like council tax but for commercial properties – and energy bills at the factories to be cut.

However, the government says its hands are tied by EU legislation.

There had to be a Brexit angle somewhere. Is the EU really a problem?

Yes and no. The government will now have to walk a tightrope by not wanting to appear too anti-EU in the run-up to June's referendum, while also wanting to show they are trying their hardest, but struggling with EU rules.

It is true that there are some rules around state aid that could cause problems. Critics have pointed out that German and Italian governments helped reduce bills and bail out their own steel industries in recent months.

But the rules allow for bailouts to help with "long-term competitiveness and efficiency", not to support "manufacturers in difficulties".

The European Commission recently slapped down Belgium for helping its steel companies, while an investigation was launched into bailouts by the Italian government.

One way for things to be sorted would be an increase in EU tariffs on Chinese steel, which currently sit at just 9%. By comparison, the US has the power to increase tariffs to as high as 236% on some products.

The UK could apply to the European Commission for the European Globalisation Adjustment Fund. A spokeswoman for the commission said no application has yet been received.

Haven’t we had bailouts before?

We have. The banking bailout in 2008 saw Northern Rock, Bradford and Bingley, Royal Bank of Scotland, and Lloyds Banking Group either nationalised or part-nationalised.

The International Monetary Fund reckons Gordon Brown spent £1.2 trillion on bailouts, and many argue we should help out the steelworkers.

Actor Michael Sheen, who grew up in Port Talbot, explained: "The steel industry was shaken hard by the financial crisis in 2008. The banking industry was helped enormously to recover from that. I hope that we can see as much support for the steel industry and its workers now that they face their time of greatest need."

Dr Adam Marshall, the British Chambers of Commerce's acting director general, added: "Assuring domestic production of steel is hugely important to the UK's future growth prospects, and to our aspirations for the manufacturing and construction sectors, which are having a hard enough time in an uncertain global market as it is.

"The loss of steelmaking would leave the UK vulnerable to global shocks, with dangerous consequences across the economy."

The difference between the banks and the steel industry seems to be that the government knew there was a future for banking, but needs to decide whether a future for steel is as clear-cut.

The Conservatives will also be keen to be seen to be doing something, as they have previously stated that future growth should come from manufacturing. There is also the small matter of local and national elections in May.

Others have also pointed out that the $80 billion US bailout of its car industry was a roaring success.

Have the Conservatives nationalised anything before?

Funnily enough, before the 2008 financial crisis, the last major renationalisation by a UK government was when Conservative PM Edward Heath in 1971 took the then struggling Rolls Royce on to the public's books. The engine maker, which had over-committed on plane engine development, did not go private again for 16 years.

Margaret Thatcher also dabbled in a bit of privatisation via the back door during the early 1980s. She wanted to privatise the steel industry, which had at that point mainly been in public hands, but to achieve this, she had to buy out smaller steel firms and team up with recovery specialists before selling the businesses.

Simon Neville is business editor at BuzzFeed UK and is based in London.

Contact Simon Neville at simon.neville@buzzfeed.com.

Got a confidential tip? Submit it here.