The UK government is close to approving a £600m bailout for British Steel, with the money set to be used to secure the future of the company’s Scunthorpe plant.
The move comes as Labour has shown renewed determination to resolve long-standing issues with Chinese company Jinji, owner of British Steel, which has left the plant’s future uncertain for more than four years.
British Steel, one of only two companies in the UK that produces strategically important “virgin steel”, along with Tata Steel at Port Talbot in Wales, is facing significant financial challenges. Genge, which took over British Steel in March 2020 after it collapsed and went into bankruptcy, operates two blast furnaces at the Lincolnshire site, employing around 4,000 people.
The proposed bailout is part of a wider strategy to convert British Steel’s operations from conventional blast furnaces to cleaner electric arc furnace technology. The switch is expected to cost £1.25bn and would cut carbon emissions by 75%. However, Genge said it would require significant public funding to make the switch happen, with £600m of taxpayer aid currently under negotiation.
Despite the potential benefits, trade unions have expressed concerns about the impact on jobs, warning that up to 2,000 jobs could be lost due to reduced demand for labour in electric arc furnace production. In addition, some of Scunthorpe’s production could be moved to British Steel’s Teesside plant, where a new electric arc furnace facility is planned.
Discussions over a bailout have dragged on, partly because of concerns about Jinji’s commitment and financial stability, as highlighted by red flags from the company’s auditors. But with Labour now in government, there has been renewed momentum in the talks. Options being considered include keeping the blast furnaces running until new blast furnaces are ready and potential investments in carbon capture and storage.
A government spokesman stressed the importance of a “green steel transition” that protects jobs and secures the future of the British steel industry. Newly filed accounts show that Genge injected £100m into British Steel last October, providing some reassurance to the government about the company’s financial support.
The potential British Steel rescue is likely to follow a similar rescue deal for Tata Steel, which has also been in talks with the government. The previous Conservative government reached an agreement for Tata’s proposed move to electric arc furnace technology at its Port Talbot site in Wales, but the deal was not signed before the last general election.
Labour’s business secretary Jonathan Reynolds has already taken steps to avert a strike at Port Talbot, but the party could face further pressure from unions over its steel strategy. Unions insist taxpayer support should be conditional on keeping blast furnaces running, something British Steel and Tata claim is no longer economically viable.
As Labour seeks to balance its green pledges with the economic realities of the steel industry, the outcome of these negotiations will be crucial in shaping the future of British steel production.
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