Economy

British Steel must be saved

BY Simon Clarke   /  28 May 2019

Skinningrove is known locally as the Iron Valley.  It is home to the Special Profiles division of British Steel. Situated on the rolling East Cleveland coast, just south of the mouth of the Tees, steel has been produced here since 1874. The steelworks have survived all the transformations and traumas ever since, from German bombs to the decline of heavy industry in the 1980s.

Yet now they are in grave danger. Last week, owners Greybull Capital placed British Steel in compulsory liquidation, and the official receiver has moved in. The shadow of the end of steel-making hangs heavy over Teesside.

Last week, on Friday, I accompanied Business Secretary Greg Clark to the Special Profiles division for good meetings with both management and workers. I followed up by going to the Carlin How Working Mens’ Club a few hundred yards away for a Q&A with the local community, including many of the steelworkers themselves.

Greg Clark knows the human cost of the loss of steelmaking better than most. He is a Teessider himself, and when the SSI plant in Redcar shut down almost overnight in 2015, his brother-in-law lost his job. That same fear was on the faces of the men and women I spoke to on Friday. Alongside the local polyhalite mine, British Steel anchors the East Cleveland economy, and their future is shrouded in the deepest uncertainty.

I am determined this won’t happen to Skinningrove, nor at nearby Lackenby. And I am angered by the articles that suggest it should – that we should add British Steel to the list of companies like Comet and Monarch that have gone bust under the ownership of Greybull Capital, and move on.

To argue otherwise is to invite criticism that we’ve gone back to the 1970s, and that a British Leyland is lurking around every corner. The spectre of Harold MacMillan, himself a Teesside Conservative MP in the 1930s, rears his elegant head.

Well, I am a Conservative, and a huge admirer of Margaret Thatcher. I believe in the vital merits of competition and change, and I believe that bad companies must be allowed to go bust just as others will be created. But I also believe that the government has been right to fight for British Steel, and if necessary will need to fight even harder.

To understand why, we need to look at the facts. Steel is a foundation industry for any advanced economy. The United States, Germany, France, Korea – none of these countries would dream of not having advanced steel-making capability.

After decades of shrinkage, what remains of the UK steel industry is hugely sophisticated. The Special Profiles division at Skinningrove supplies all the steel for Caterpillar not just in the UK, but in the United States as well. It specialises in the production of high-end products like track shoes for forklift trucks, or the cutting edge of a bulldozer – shapes that are almost unbelievably difficult to make to the requisite standards of reliability. To visit the site is to see UK precision technology, literally laser-guided, at its finest.

When a bespoke product is ordered, the team at Skinningrove contact the main plant down the coast at Scunthorpe, and the precise chemistry of the raw steel can be ordered from there. It takes six hours to bring it by train to Skinningrove, where the end product is then fashioned. It can be ready for whoever needs it within days.

This is not a capability we should cast away lightly. For the fault for the current crisis does not lie with those working at the British Steel plants themselves. It lies partly with some of the barriers domestic policy has erected to a successful steel industry, and partly with one of the most unattractive faces of contemporary capitalism.

The policy barriers are obvious, and need rectifying swiftly under whoever leads the next Conservative government. The first is our exorbitant energy costs: the average electricity price for UK steel producers this year is around £65 per megawatt hour (MWh), compared with Germany at £43/MWh and France at £31/MWh. This is a hurricane of a headwind that is hammering competitiveness. We need to take steps to allow our energy-intensive industries to compete on a level playing field. Should the Government take action to do so, UK steel companies have committed to reinvest the estimated £55m they would save each year back into production facilities.

The second barrier is Brexit uncertainty. The short-term instability at British Steel has been such that both they and their customers do not know the terms on which they will be trading. They didn’t in March, and now they don’t again come October. Steel orders, like other commodities, are both price-sensitive and often placed months in advance. This way madness lies, and it is one of the reasons I opposed the repeated extensions of our EU exit talks so firmly.  We must make it clear to the world: the new Prime Minister will not suffer or seek any extension beyond 31 October. We will leave then, hopefully with a deal with the backstop problem removed, but if necessary without one.

But these policy problems are only part of the problem. We also need to look at the issue of British Steel’s ownership.

The owners, Greybull Capital, are quickly developing a reputation less as a “turnaround” firm and more as an undertaker. They bought British Steel from Tata for £1 in 2016.  Three years on, last week they declined to put in sufficient of their own money to allow the Government to legally invest alongside them on a commercial basis, prompting the insolvency declaration.

I could go on. I could mention the way Greybull have been charging British Steel 9.6% for the money they have loaned them, sucking funds out of the business. I could mention the “bad bet” on the company’s carbon allowances that necessitated a £120 million Government loan to cover British Steel’s bill to the EU earlier last month, and prevent a ruinous £620 million charge from settling on the company’s assets. I could mention the £42 million purchase of the Ascoval steel mill in France at the very time they were begging the Government for more cash.

None of this was British Steel’s fault, nor that of their workers. Such behaviour plays precisely to the narrative Labour’s Shadow Chancellor John McDonnell wants to conjure up, of a world where enterprise is an evil, and all capitalism is predatory. We know that isn’t true, but you try telling that to the people of Scunthorpe or Teesside when they see Greybull walk away from this train wreck.

Those of who believe in the free market need to recognise that British Steel is a test case: do we let a fundamentally good business fail in these circumstances?

For even in current trading conditions, the Special Profiles division of British Steel is a profitable business. It needs time, and it deserves support. By far the best outcome for everyone involved (likely including the company’s creditors) is for Scunthorpe, Skinningrove and Lackenby to be sold as a going concern.

To this end, I warmly welcome the way the Government has put in place an indemnity to allow British Steel to keep trading while a buyer is sought.  The experience of SSI at Redcar, in 2015, is that when steel mills, and particularly blast furnaces, close, even if notionally temporarily, they are phenomenally hard to reopen. The Treasury indemnity is unlimited in time and duration, but the ultimate responsibility for the situation lies with the official receiver, and their legal duty is to the creditors. I hope and believe a buyer will be found, but the clock is ticking.

In the event that there is an imminent risk of closure, the government must consider all outcomes, including a public/private partnership or even temporary nationalisation as a bridge to new ownership. If the receiver decides to only offer weeks, and a purchase will take months, we must not be afraid of unconventional economic steps.

To fail to act would be to get that impossible question thrown back at us by the public we serve: why could you do it for the banks, but not for us?  The answer that the banks underpin the whole economy falls on stony ground – so too, in a different way, does steel, and whereas it was the banks that caused their own demise ten years ago, most of the problems haunting the steel industry, and certainly British Steel, are not of their own making.

To fail to act would also be to incur enormous costs to the Treasury.  The South Tees Mayoral Development Corporation, on the site of the former SSI steelworks at Redcar, has cost the Treasury £137 million in remediation to get it fit for new owners to move in – and those first businesses won’t be in occupation until the early 2020s. Even if the same could be done for Scunthorpe, these costs are enormous. And frankly it won’t be repeated for smaller sites like Skinningrove and Lackenby.

British Steel is not a story out of time, a last vestige of the late twentieth-century debate about a changing economy. It is an issue fiercely of the moment, and about the choices that confront us in 2019. If those of us who believe passionately in the free market want to defend it against our encircling enemies, we need to recognise that applying purist theory now would come at a devastating social, economic and political price.

Simon Clarke is the Conservative MP for Middlesbrough South and East Cleveland, and a member of the Treasury Select Committee


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