Why did British Steel need saving – and why is shutting the furnaces down such a big deal? | Politics News

The future of Britain’s last major steelmaking plant is uncertain.

The British Steel plant in Scunthorpe had been on course to close down by May, but urgent government intervention will keep it open – for now.

Emergency legislation was passed on 12 April to bring the steelworks under effective government control.

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However, Business Secretary Jonathan Reynolds has warned this does not mean the plant is guaranteed to survive.

Here is everything you need to know about British Steel and why it is important that the furnaces keep burning.

What is British Steel and why is it losing money?

British Steel has been owned by the Chinese company Jingye Group since 2020.

It is the main provider of steel rails to Network Rail and also provides products to the UK’s construction and automotive industries.

Its headquarters are in Scunthorpe, Lincolnshire, with rolling mills – a machine used to shape steel – in Teesside and Skinningrove in the UK and Alblasserdam in the Netherlands.

The Scunthorpe site employs 3,500 people and produces virgin steel, a product made from raw materials such as iron ore and coking coal – as opposed to recycled materials – using two huge blast furnaces.

Jingye stepped in with a deal to buy British Steel’s Scunthorpe plant out of insolvency five years ago, but the company has continued to struggle in an already over-supplied global market.

In fact, it is estimated to already be losing £700,000 a day.

Jingye said the blast furnaces were “no longer financially sustainable”, blaming “highly challenging” market conditions, tariffs and costs associated with transitioning to lower-carbon production techniques.

Tariffs imposed by Donald Trump put a 25% tax on all steel imports to the US, pushing up costs even further and igniting calls for countries to urgently secure their own supplies of critical materials, especially those used for defence and infrastructure.

Why is British Steel important?

If British Steel shuts, the UK will be more reliant on imports for critical infrastructure sites, Sky News’ economics and data editor Ed Conway said.

It will also mean the UK becomes the only country in the G7 – the forum of the world’s most powerful economies – without the capacity to make steel from scratch.

Industries including rail, construction and defence would feel huge repercussions, with the country forced to become dependent on foreign sources for virgin steel.

The government said on 12 April that steel is “vital for both the UK’s national security and manufacturing”.

It added that the product is crucial to achieve the government’s mission to build 1.5 million new homes in the UK over the next five years, with construction projects requiring millions of tonnes of steel.

Last year, the UK was the eighth-largest steel producer compared to EU countries, after Germany, Italy, Spain, France, Austria, Poland and Belgium.

It produced 5.6 million tonnes of steel, 0.3% of the world’s total, whereas China produced 1,019 million tonnes, 54% of global production.

Why can’t the furnaces be shut down easily?

Without key raw materials, Scunthorpe’s two remaining blast furnaces – named Anne and Bess – would likely have to shut for good.

While it is technically possible to restart them once they have been shut off and have cooled down, it is extremely difficult and expensive.

The complete shutdown of the furnaces would risk irreparable damage to the plant systems.

One option is for the furnaces to be “banked”, Roy Rickhuss, general secretary of the Community trade union, said.

This would keep them at a “safe temperature to keep the stoves warm” for the immediate term.

In the longer term, one of the furnaces could be drained of its molten metal and effectively turned off, through a process called a “salamander tap”.

This would “create more raw material resources to keep the other furnace going”, Mr Rickhuss said, preserving it until around mid-May.

Sky News deputy political editor Sam Coates said a partial shutdown of the furnaces, so soon after the goverment has stepped in to save the company, would be very embarrassing.

Why has the government taken over the company?

Sir Keir Starmer’s government has been under pressure to intervene with British Steel after Jingye decided to cancel future orders for the iron ore, coal and other raw materials needed to keep the furnaces running at the beginning of April.

At the end of March, the Chinese-owned company also rejected the government’s offer of £500m in public money to replace the existing furnaces with electric arc furnaces, a move which would help transition the Scunthorpe site to green steel production.

After negotiations with Jingye appeared to break down, the government took the unusual step of recalling parliament on 12 April, with peers being recalled from recess to take part in a Saturday sitting for the first time in over 40 years.

They voted to pass the Steel Industry (Special Measures) Bill into law, which essentially allows the government to take control of British Steel “using force if necessary”, order materials for steelmaking and instruct that workers be paid.

On paper, Jingye will remain the owner of British Steel, but the UK state will be able to insert itself into the inner workings of the company to legally override the wishes of the Chinese company.

Business Secretary Mr Reynolds said the measures within the bill were “proportionate and necessary” to keep the site’s blast furnaces open and protect both the UK’s primary steelmaking capacity and the jobs of the 3,500 people who work there.

Businesses and trade unions welcomed the government’s decision.

John Foster, chief policy and campaigns officer at the CBI, said it was “a necessary outcome of last resort” to protect the UK’s primary steelmaking industry, while TUC general secretary Paul Nowak said it was “the right thing to do” and “in the national interest”.

What will happen next?

The steel plant in Scunthorpe will now continue to operate as the government decides on a long-term strategy and considers the future of steelmaking in the UK more broadly.

New interim executives Allan Bell and Lisa Coulson have been appointed as efforts continue to secure the company’s future.

The government is also trying to secure supplies of materials, including coking coal, to keep the plant operational and to ensure all staff will be paid.

Treasury minister James Murray told Sky News Breakfast that raw materials to keep blast furnaces going are “in the UK” and “nearby” the British Steel site in Scunthorpe.

Andy Prendergast, the national secretary of the GMB Union added he is “hopeful” crucial raw materials will be delivered in the next 48 hours.

The Steel Industry (Special Measures) Bill stops short of nationalisation, but Mr Reynolds told MPs that public ownership remained the “likely option” for the future.

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Sky News’ Sam Coates said the government’s bill has provided a “sticking plaster, not a solution”.

He said on the Politics At Sam and Anne’s podcast: “If we do go for full nationalisation, I am told that it is going to cost around £4-5bn – an increase in borrowing which will make the treasury nervous.

“The second problem is that we have taken control of something that is not going to work for very long. The blast furnaces have only really got a few years’ life in them.

Coates said the discussion will now focus on how the government can transition the plant in Scunthorpe to one that uses electric arc furnaces, which are more environmentally friendly, a transition that is expected to cost billions.

The government has “huge liabilities” to keep British Steel open and “huge liabilities to turn it into a medium to long-term success”, he added.

‘High trust bar’ for future Chinese investment

Speaking in the House of Commons, Mr Reynolds appeared to accuse Jingye of acting in bad faith in order to effectively scupper domestic steel production.

He told MPs: “Over the last few days, it became clear that the intention of Jingye… was to cancel and refuse to pay for existing orders. The company would therefore have irrevocably and unilaterally closed down primary steelmaking at British Steel.

“Their intention has been to keep the downstream mills, which colleagues will know are fundamental to our construction steel industry, and supply them from China rather than from Scunthorpe.”

Appearing on Sky News’ Sunday Morning With Trevor Phillips, Mr Reynolds appeared to scale back his accusation, declining to accuse the company of deliberately sabotaging the business at the behest of the Chinese Communist Party.

But he did accept that there is now a “high trust bar” to bringing Chinese investment into the UK.

“I personally wouldn’t bring a Chinese company into our steel sector,” he said. “I think steel is a very sensitive area.”

Jingye has not directly commented, but the Chinese embassy in London urged the British government on 14 April to act with “fairness” after passing the emergency legislation.

An embassy spokesperson said: “It is hoped that the British government will actively seek negotiation with the relevant Chinese company to find a solution acceptable to all parties.”

Contrast to Scotland and Wales

The government’s decision to intervene in British Steel has angered MPs in Scotland and Wales.

The leader of the SNP, Stephen Flynn, has accused the government of “manufacturing grievance” over calls for it to save the Grangemouth oil refinery.

He said: “Energy security is national security and if a steel plant in England, rightly or wrongly, merits Westminster taking the extraordinary step of recalling Parliament with a view to nationalise it, then why not our key energy asset at Grangemouth?”

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There is a similar story in Wales, with Plaid Cymru angry about the differing treatment towards British Steel and another steelmaking plant in Port Talbot, which closed last year as part of Tata Steel’s transition to greener production.

Tata Steel said in February it had invested £1.25bn into Port Talbot to build the electric arc furnace, supported by £500m from the UK government – a similar deal Jingye rejected.

Plaid Cymru said: “When 2,800 jobs were being lost in Port Talbot, this UK government chose not to consider nationalisation.

“Now in Scunthorpe, everything is on the table. Labour must now explain to the people of South Wales why their jobs weren’t worth saving.”

The party added: “Labour has betrayed Welsh industrial communities.”