The UK steel industry: Government response to the crisis Contents

1Introduction

Steel in the UK

1.Steel constitutes a fundamental component of most elements of everyday life. From buildings to cars, to chemicals or food, steel underpins a range of industries and processes. Steel constitutes an important part of the UK’s foundation industries, so-called because they supply materials to multiple strategic manufacturing and construction supply chains. Taken together, these industries represent 20% of those employed in the manufacturing sector in the UK and generate Gross Value Added (GVA) of £24.6bn.1 In 2014, the steel industry2 in the UK employed 34,500 people across 465 businesses and had an economic output of £1.7 billion.3 This employment is spread unevenly across the UK: over 50% being located in Wales or Yorkshire and Humberside.4 The UK steel industry therefore not only underpins a range of domestic industries; it forms the core of some local communities.

Historic context

2.While the steel industry is of significant local importance the commodity itself is subject, like other products, to competitive market forces in the global economy. It is therefore important to set the current crisis in an international and historic context. The UK steel industry has shrunk substantially over the last forty years, both in terms of production and as a major employer, as illustrated by Figures 1 and 2.

Figure 1: UK steel production since 1900

Source: Office for National Statistics, The British steel industry since the 1970s, December 2015

Figure 2: Employment in UK steel industry5

Source: Office for National Statistics, The British steel industry since the 1970s, December 2015. The breaks represent slight discontinuities caused by changes in survey methods.

3.Over the same period, other countries have increased capacity substantially. In the last decade, world steel production has undergone a rapid expansion, with total production increasing by 96% between 2000 and 2014. Most of this increase is accounted for by China, which has more than quadrupled its steel production since 2000.

Figure 3: Increase in steel production

Source: EEF / UK Steel Annual Review 2014

4.Over the last four decades production in the UK has slipped behind that of our major competitors such as France, Spain and Italy, and has fallen even further behind that of Germany (Figure 4). On the basis of relative production, it appears that, over a long period of time, other European countries have both better valued their domestic steel industry and have been able to withstand global competition more effectively than has been the case with the UK. These two points appear linked. We regret this failure on the part of successive UK Governments to value the steel industry as a crucial foundation for manufacturing and the wider economy and the related ability to compete amidst fierce global trade.

Figure 4: European steel production (thousand metric tons)

Source: World Steel Association, Steel statistics yearbooks

The current crisis

5.The slowing of economic growth in China over the last two years has contributed to a decline in demand for steel there and consequently an over-abundance of steel on the international market. This has pushed down prices significantly.

Figure 5: Steel prices since 2010 (Euros per tonne/ex works)

Source: EEF / UK Steel Annual Review, p 4

In the UK, this slowdown in demand has been coupled with the effects of a strengthening pound to add further pressure on price. This combination has been described as a “perfect storm” of difficulties for the industry6 and has caused the current crisis in UK steel. Industry analysts have characterised the consequent situation faced by the industry as “very grave”.7

6.This period of acute pressure has resulted in over five thousand job losses within the past six months, which have affected whole communities. Although the difficulties facing the industry have been growing for some years, the word “crisis” has been used largely since August or September, and was a term the Minister was comfortable to use in the debate in the House of Commons on the steel industry in September 2015.8 The sequence of events in the steel industry over the summer and early autumn is set out in Table 1 below.

Table 1: Steel crisis timeline

Date

Event

16 July 2015

Tata jobs losses in South Yorkshire and West Midlands

17 September

Debate on the steel industry in the House of Commons

28 September

SSI announces they will be mothballing their plant in Redcar

2 October

SSI goes into liquidation

5 October

Official Receiver announces the Redcar plant will close after no buyer is found

16 October

Government holds a “steel summit” which sets up three working groups to tackle issues in the industry

16 October

Tata announces it expects to significantly reduce its workforce at its Scunthorpe plant, alongside sites in Motherwell and Cambuslang

19 October 2015

Businesses in the Caparo group enter administration

20 October

Chinese President Xi Jinping visits the UK, during which he is asked about issues in the steel industry

23 October

Government and Tata Steel announce an initial support package of up to £9 million to ease restructuring and job losses at Scunthorpe

28 October

Secretary of State Sajid Javid visits Brussels to pursue action on steel

9 November

Steel is discussed at the EU Competitiveness Council

11 December

Reported that 600 jobs had been saved at Caparo group*

* 600 more jobs secured at Caparo, BBC News,11 December 2015

7.Given the seriousness of the crisis in the industry and the speed of events, we convened businesses, unions, interested parliamentarians and the responsible Minister to hear evidence about the Government’s response to the crisis. We followed this up in further correspondence with the Minister.

8.Whilst it is important to view the current crisis against the historic performance of the industry, we have not sought in this brief inquiry to examine in detail every decision of successive Governments which may have contributed to the current situation. That is a much deeper study. Instead, we have focussed on recent events and the effectiveness of the Government’s response to the current crisis. We also consider whether there are any broader lessons for the Government in terms of its industrial policies.

2 ‘Steel industry’ being defined as the manufacture of basic iron; steel/non-ferro alloy; tubes, pipes, hollow profiles and related fittings; and other products of first processing of steel.

3 UK steel industry: statistics and policy, Standard Note SN07317, House of Commons Library, October 2015

4 As above

5 Breaks indicate changes in calculation methodology

6 ‘UK steel bit by perfect storm of falling prices and high costs,’ Financial Times, 29 September 2015

7 Q3 [Gareth Stace]

8 Q37 [Gareth Stace]




© Parliamentary copyright 2015

Prepared 18 December 2015