The UK steel industry: Government response to the crisis Contents

4Strategic importance of steel

Government industrial policy

37.The Government’s response to the steel crisis should also be seen in the context—and perhaps as an example—of its broader industrial policy. The language of this policy has shifted from the “industrial strategy” of the previous government to the “industrial approach” preferred by the current Secretary of State, although he told us that they “mean essentially the same thing”.53 He stressed that, while Government can help any industry, “I do not want to be in a position where it looks like the Government have favourites and therefore we do not care about other industries.”54 In contrast, the Minister for Small Business, Industry and Enterprise, Anna Soubry MP, was happier to acknowledge that the Government has priorities: “We have never moved away from looking at and understanding what sectors are important to us.”55 The Chancellor of the Exchequer said in his Autumn Statement that “Businesses also need an active and sustained industrial strategy. That strategy, launched in the last Parliament, continues in this one.”56 We agree with the Chancellor on the need for an industrial strategy. Whether it is called a strategy or an approach may primarily be a matter of semantics; what matters is that the Government supports those industries which it considers to be important and the foundation industries which support them.

38.Ministers have consistently spoken of the importance of the steel industry. The Prime Minister has described it as “vital”.57 The Minister for Small Business, Industry and Enterprise disagreed with the suggestion that the steel in industry “is not strategically important.”58 She said that “The steel industry is a very important part of our manufacturing sector, it is important to our country and we have to do everything we can for it”.59 She explained to us that:

There are certain things, aren’t there, which you think, as a country, you could possibly live without? But then there are the core things that you need for any good economy, and one of those things is a steel industry, and we agreed on that. [...] Defence is a really good example of the need to produce your own steel. I always put it this way. Come the time when HS2 and HS3 place the orders for rail tracks to be made of steel, I want those rail tracks to be made, rolled, whatever it is, in Britain, and made from British steel. That, if you like, is the emotional hook upon which all our work is now resting, to secure what is left of the British steel industry.60

We agree that there are sound strategic reasons for the country to maintain the capacity to produce steel. That capacity is now in danger of being lost.

Industrial capacity and skills

39.In the case of the steel sector, the prospects of future growth have been severely damaged by the irrevocable loss of capacity and skills. In their evidence to us Community argued that “Government must recognise that major steel assets, like the Redcar blast furnace and coke ovens, are national strategic assets of critical importance to our economic future and security.”61 Tom Blenkinsop, MP, told us that

I still firmly believe that, if a programme was put in place in order to maintain the coke ovens and properly mothball the blast furnace, you could have retained the assets in situ, until these five elements were put in place and the market buoyed again.62

40.Once facilities have been closed, it is unrealistic to expect them to be recoverable. The Minister did not dissent from this view, telling us that “I think, sadly, it is not going to come back, and that is dreadful.”63 The costs of cleaning up the land and preparing it for future use have not been calculated but are likely to be large.

41.The loss of skills is equally difficult to rectify. Recent events and closures have led to the announcement of over 5,000 job losses already. There will also be a significant if unquantifiable number of jobs lost as a result of the impact on businesses in associated supply chains. Roy Rickhuss told us that

What we see quite often in the UK is that when there is a downturn, workers get laid off, those skills get lost, and it is very difficult then to bring them back.64

42.Having these assets is vital to help the industry rebuild after the worst of the current crisis has passed and market conditions are more favourable. It is possible for skills to be preserved. Roy Rickhuss explained that there had been effective skills retention programmes, both in this country—when Teesside Cast Products was mothballed—and also in the Netherlands.65 We have not seen similar schemes following the Redcar closure. The consequent loss of capability for the industry, and for the UK, is irrevocable. Given the importance with which Ministers themselves have held the steel industry we regret that Ministers were not able to give more attention to investigating the potential for maintaining existing facilities and preserving the skills base.

Future for steel

43.It is primarily for industries themselves to adjust to the changing economic climate and prepare to meet future challenges posed by the global market. We have not examined in detail the actions of the companies themselves in this brief inquiry, nor the industry’s performance in planning for the future. There are, no doubt, questions to be asked. Regardless of where responsibility lies for the current crisis, if steel is to have a viable future in the UK, it needs to adjust and plan for the future. The metals sector, of which steel is a part, has now sought to do this. The Government has supported the work of the Metals Forum to establish a strategy for the future. In its recent document, Vision 2030, the Minister for Small Business, Industry and Enterprise wrote:

The Metals Strategy will provide a platform for Government to work with the sector on the issues which may hold back growth of the sector.66

The Metals Forum seeks to provide a single voice for the component parts of the sector in order to improve connectivity within the industry and maximise its value and contribution to the economy.

44.The document itself recognises the need for considerable change within the sector but does not set out a clear list of agreed actions to be taken in respect of the steel industry. It is a good start and we welcome the Government’s engagement. But even if the five asks from industry are delivered in full, more work needs to be done to develop detailed policies and measures to provide for a more secure future. The working groups established by the Government and the Metals Strategy should represent the start of a better, strategic and proactive, relationship between industry and government. Having accepted that the steel industry is of strategic importance to the country, the Government has a responsibility to do what it reasonably can to protect its health. We recommend that the Government identifies and articulates the type of steel industry it believes is required in the UK and works with the industry to establish the detailed measures and actions required to secure its future over the medium to long term.

Lessons learned

45.Whatever the results of the Government’s immediate action, there are potentially useful lessons to be drawn from the current crisis for future policy. First, it appears that Whitehall was insufficiently sensitive to the warning bells that had been sounded by the steel industry for some time. There needs to be ongoing engagement and escalation where necessary, rather than crisis management late in the day. Secondly, it is clear that over a number of years that the UK has not taken full advantage of state aid rules to support UK business. More clarity and proactive engagement is required. Thirdly, we now know that rapid action is possible. Ministers have demonstrated over recent weeks that where there is the political will and commitment, it is possible to make progress domestically and to be more proactive in pursuing UK interests at an EU level.

46.We do not believe that industries should expect to receive hand-outs from governments, however important they may be. But they should generally be entitled to expect from government domestic legislation that allows them to compete fairly with our European neighbours, and support at an international level in securing fair competition globally. The Government should now work with industry to consider the extent to which the success of other core sectors is threatened as a result of domestic policy decisions as opposed to global market pressures. We recommend that the Government should set out what mechanisms it will put in place to maintain close links with key sectors and how it will ensure that it can act at an early stage to avoid the damage suffered by the UK steel industry being experienced by other key sectors. We further recommend that the Government should publish and publicise clear guidance on what is and is not permissible under state aid rules, based upon an examination of current European practice.

53 Oral evidence taken on 14 October 2015, HC (2015-16) 500, Q41

54 Oral evidence taken on 14 October 2015, HC (2015-16) 500, Q42

55 Q176

56 HC Deb, 25 November 2015, col 1367 [Commons Chamber]

57 Q66

58 Q67

59 HC Deb, 15 July 2015, col 325WH [Westminster Hall]

60 Q68

61 Community (UKS0002) para 3.7

62 Q53

63 Q105

64 Q11 [Roy Rickhuss]

65 Q11 [Roy Rickhuss]

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Prepared 18 December 2015