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British Steel nears £600m Government bailout as Labour signals intent to break deadlock

August 11, 2024

A planned strike by workers at Tata Steel’s Port Talbot plant, which was scheduled to commence next Monday, has been suspended following high-level negotiations over the weekend.

The UK government is on the verge of agreeing to a £600 million bailout for British Steel, with the funds set to secure the future of the company’s Scunthorpe plant.

This move comes as Labour signals a fresh determination to resolve long-standing issues with British Steel’s Chinese owner, Jingye, which have left the plant’s future uncertain for over four years.

British Steel, one of only two UK manufacturers of strategically important “virgin steel,” alongside Tata Steel at Port Talbot in Wales, has been grappling with significant financial challenges. Jingye, which acquired British Steel in March 2020 after its collapse into bankruptcy, operates two blast furnaces at the Lincolnshire site, employing around 4,000 workers.

The proposed bailout is part of a broader strategy to transition British Steel’s operations from traditional blast furnaces to cleaner electric arc furnace (EAF) technology. This shift, estimated to cost £1.25 billion, would reduce carbon emissions by 75%. However, Jingye has made it clear that it requires substantial public funding to make the switch, with £600 million of taxpayer aid now under negotiation.

Despite the potential benefits, unions have raised concerns about the impact on jobs, warning that up to 2,000 positions could be lost due to the lower labour demands of EAF production. Additionally, some of Scunthorpe’s production could be relocated to British Steel’s Teesside plant, where a new EAF facility is planned.

The bailout discussions have been prolonged, partly due to concerns over Jingye’s commitment and financial stability, as highlighted by red flags from the company’s auditors. However, with Labour now in government, there is renewed momentum in the talks. Options being considered include continued operation of the blast furnaces until the new EAFs are operational and potential investments in carbon capture and storage.

A government spokesperson emphasised the importance of a “green steel transition” that protects jobs and secures the future of the British steel industry. Recently filed accounts show that Jingye injected £100 million into British Steel last October, providing some reassurance to the government about the company’s financial backing.

This potential rescue deal for British Steel is likely to follow a similar bailout for Tata Steel, which has also been negotiating with the government. Tata’s proposed transition to EAF technology at its Port Talbot site in Wales had reached an agreement with the previous Conservative government, but the deal was left unsigned before the recent general election.

Labour’s business secretary, Jonathan Reynolds, has already made moves to avoid industrial action at Port Talbot, but the party may face further union pushback as it navigates its steel sector strategy. Unions are adamant that taxpayer support should be contingent on maintaining blast furnace production, which both British Steel and Tata argue is no longer economically viable.

As Labour aims to balance its green pledges with the economic realities of the steel industry, the outcome of these negotiations will be critical in shaping the future of British steel production.