Tag Archives: EU state aid

Why we need to give up on UK steel

As Jennifer Aniston’s relentless array of terrible movie roles demonstrates, sometimes you just need to accept something isn’t working, will never work and move on. Because if you don’t, you will be throwing money down the drain that could be better spent elsewhere and will inevitably look back on it as a costly mistake.

Just as Jen should put the rubbish rom-com scripts down, the UK’s steel industry needs to accept its shortcomings and cut its losses.

Over the past few months, mill closures and job cuts have grabbed headlines, with the UK’s steel crisis blamed on a handful of things: the dumping of cheap steel from China; high energy costs; a strong pound; and high business rates for capital intensive firms.

Out of these factors, China has broadly been seen as the largest culprit in making UK steel unprofitable. After a slowdown in the world’s second largest economy, the People’s Republic has had a surplus of steel on its hands that it has been offloading for a cheaper price. Plentiful state subsidies give Chinese steelmakers an even more unfair advantage in the global market, its critics say.

I’m not disputing the validity of these arguments. China is a big problem. Energy costs and business rates are higher for steelmakers here than overseas. But I do not see any way that UK steel could become truly profitable without heavy state subsidies.

The industry has received £50.4m from the UK government since 2013 to offset environmental levies and is currently waiting for EU state aid approval for the Energy Intensive Industry Compensation Package, which will provide hundreds of millions of pounds for energy-intensive industries including steel.

And the sad truth is it would take even more than this to keep it afloat, due to the myriad of problems hammering the sector.

European politicians have this week promised “full and speedier” measures to address Chinese dumping, but knowing Brussels bureaucracy this is likely to be nothing near speedy, if anything is achieved at all.

Even if China were tackled AND the UK government lowered business rates AND energy rates, you still have the strong pound to worry about – and the fact that it’s cheaper transportation-wise to make steel in countries such as China, which are closer to where iron ore is mined, especially as the end-user is often in the Far East.

For me, the situation draws immediate parallels with UK coal. We still get a significant part of our energy from coal, yet our coal-fired power plants continue to shut down. Instead, we rely heavily on cheaper, imported coal. We simply can’t compete on price.

It may seem harsh to want to curtail support for domestic industries and I am not intending to diminish the devastating impact of job cuts on local communities in any way. But the UK needs to look to its strengths and replace investment in loss-making industries with investment in new ones.

Rather than provide a temporary panacea for steel plants with a support package that will inevitably run out and need renewing, why does the UK government not invest in the communities affected, providing new jobs in more sustainable industries?

Giving up on UK steel does not mean giving up on UK industry – it’s about adapting to our strengths and accepting our weaknesses.