Liberty Steel and the Future of the UK Steel Industry – Report Summary

Summary

Liberty Steel UK is one of six major steel companies in the UK and is controlled by GFG Alliance. The company was previously funded using supply chain finance provided by GFG Alliance through funds received from Greensill Capital. On 8 March 2021 Greensill Capital collapsed, removing GFG Alliance and Liberty Steel UK’s primary source of funding, calling into question the financial viability of Liberty Steel UK and putting thousands of jobs at risk.

Corporate governance and financial arrangements within GFG Alliance are controlled by Sanjeev Gupta who makes strategic decisions through a central treasury and central committee. This structure means that members of staff within his businesses are prevented from performing their roles and duties adequately. A number of audit and corporate governance red flags became clear during this inquiry. Witnesses agreed that the audit of Liberty Steel UK businesses by audit firm King & King posed risks to the businesses including a lack of capacity to complete audits effectively. The frequent changing of accounting deadlines and the resignation of auditors also raised red flags. Furthermore, witnesses disputed GFG Alliance’s assertion that its complex structure is usual for a family-owned group of businesses.

In March 2021, the Business Secretary rejected GFG Alliance’s request for a £170 million grant for Liberty Steel UK businesses due to opacity around corporate governance. We commend the decision to reject this grant and urge the Government to consider formalising a fit and proper person test for private company directors within any future steel sector deal. Both Greensill Capital and GFG Alliance described a concentration risk (a high percentage of lending to a single customer) in relation to their respective companies which could have played a role in the collapse of Greensill Capital and the subsequent financial difficulties within GFG Alliance and Liberty Steel UK. A number of high-risk financial practices were used by GFG Alliance and Greensill Capital such as future receivables, a form of financing where funds are extended based on an expectation that a future invoice will be issued. The use of any high-risk financial practices is at odds with the requirements of any future steel sector deal. While we are aware of Liberty Steel UK’s recent refinancing efforts, we do not agree with Sanjeev Gupta’s decision to set up another corporate entity in order to fund these companies.

On 3 April 2021, the Coronavirus Large Business Interruption Loans Scheme (CLBILS) was launched. The scheme was administered through the British Business Bank and gave large businesses access to finance such as loans. Greensill Capital loaned £350 million in Government-backed loans to Liberty Steel UK companies. GFG Alliance had been treated as a single group, therefore, Greensill Capital’s lending was £300 million above the lending limits applicable to it. An investigation by the British Business Bank is currently underway into the misuse of these loans and the guarantees have been suspended.

The leadership of Liberty Steel UK has highlighted the vulnerability of an industry described as a national strategic asset and a foundation industry, due to its importance to the manufacturing and construction sectors, among others, including defence. The second part of our report begins with the premise that the UK cannot afford to lose this vital industry and examines the current health of the sector together with the opportunities and challenges it faces.

We found an industry still grappling with many of the same challenges it faced in the lead-up to the 2015–16 steel crisis and that the Government’s rhetoric on the strategic importance of steel has not been matched by sufficiently supportive policy. UK steel producers are still facing some of the highest energy prices in Europe and this disparity has been transformed into an immediate crisis due to the recent surge in gas prices. We recommend that the Government take action to reduce this disparity and emphasise that any short-term bailout must not be at the expense of sustainable, long-term reductions in costs for UK producers to enable them to compete on a level-playing field with producers on the continent.

The Government is a major buyer of steel but we found that UK steel producers are still encountering barriers when attempting to supply into public projects. We recommend a range of measures are taken to drive up the public procurement of steel, including updates to the procurement policy note, a requirement for all Government projects to fully report on the value and origin of their steel requirements and setting minimum UK steel content targets for major public projects such as HS2.

As a significant contributor of greenhouse gas emissions, decarbonising the steel industry will be an important part of meeting the Government’s target to bring all greenhouse gas emissions to net zero by 2050 and to cut emissions by 78% by 2035. However, while there exist a range of options for decarbonising the steel industry we found that the sector is holding off on investing in these technologies without certainty and direction from Government. We recommend that the Government step up its efforts to provide a supportive policy environment to enable the industry’s transition to a low carbon future.

The UK steel industry cannot continue to lurch from crisis to crisis. Decarbonisation presents a unique opportunity to realign the sector and many of the industry’s wider challenges will need to be addressed to enable the transition to net zero. We see this as a pivotal opportunity to set the industry on the path to a viable and sustainable future and call on the Government to establish a Sector Deal which will address long-running challenges to the sector’s competitiveness as part of a cohesive plan for decarbonising the industry.