British Steel's site in Scunthorpe could convert over time to using an electric arc furnace, a lower-carbon alternative to traditional blast furnaces. However, this transition raises significant questions about the company's future, potential sale, and the cost to taxpayers.
Nationalisation on the Horizon
Full nationalisation of British Steel is expected to be announced in the King's Speech, ending the current limbo state of ownership and providing some comfort for 4,000 workers. Keir Starmer previously boasted about the government's decision to take control of the Scunthorpe plant last year, but that action was merely an emergency measure to keep the plant operational. Since then, the government has incurred operational losses of £615 million and counting, according to the National Audit Office (NAO).
Potential Sale and Subsidies
Ministers may confirm later this week that nationalisation is not an end in itself but a means to facilitate a sale or partial sale to a better owner. One potential suitor is Sev.en Global Investments, a Czech group that owns a modernised steelworks in Cardiff. However, the terms of any post-nationalisation sale will be crucial. The plan likely involves converting the Scunthorpe site to an electric arc furnace, a process that takes about three years to build. Keeping the old blast furnaces running during the transition is expected to avoid disruptions to the UK's steel strategy and union conflicts.
The cost of such a transition could be steep. A new owner will likely require subsidies to cover transition losses and to build the electric arc furnace itself. The going rate for such subsidies was set at Port Talbot, where Tata Steel received a £500 million support package for a £1.25 billion investment. Additionally, the government may need to provide a payment to the current Chinese owner, Jingye, to exit quietly.
Steel Strategy and Tariffs
The UK's steel strategy, released in March, includes tariffs to deter cheap imports from China and Vietnam, aiming to increase domestic production from 30% to 40-50% of demand. This could improve the economics at sites like Scunthorpe. However, tariffs are not a cure-all, and the industry continues to complain about high electricity costs, which remain higher than in continental Europe despite subsidy schemes.
The NAO report from March warned that if current operating conditions continue, the taxpayer bill at Scunthorpe could exceed £1.5 billion by 2028. The government faces hard decisions and hard numbers as it seeks to protect jobs and steel-making capacity while minimising costs.
