How Brexit could save Yorkshire's steel industry

A new '˜Manifesto for Steel' has been drawn up in an attempt to forge a future for the industry in post-Brexit Britain. But will the Government listen? Chris Burn reports.

Forgemasters plant in Sheffield

It’s been blamed for Toblerones getting smaller, Jamie Oliver’s restaurants closing and a hike in the price of Walkers crisps, but could Brexit be the unlikely saviour of British steel? According to a group of experts the answer is yes. Or at least it is if they can persuade the Government to acknowledge the existence of an industry which back in the early 70s directly employed 321,000 people.

A major new report, which came out earlier this week, suggests Britain’s departure from the EU should be the catalyst for the introduction of a string of new policies that turn around the struggling industry’s fortunes by using it as a foundation to forge a UK manufacturing renaissance.

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But the grand aspirations laid out in the cross-party Steel 2020 report have been somewhat undermined by the Government’s own draft industrial strategy. While it was published on the same day and ran to a not insubstantial 132 pages, the steel industry appeared just once, mentioned in passing on page 91 as one of several sectors with high energy costs.

Forgemasters plant in Sheffield

Steel 2020 follows a 12-month inquiry conducted with the University of Leeds Business School and suggests state intervention is required to save the industry, while also warning of the potentially-devastating risks of not securing a good trade deal with the remaining EU nations that are British steel biggest customers.

Describing itself as a ‘Manifesto for Steel’, among those on the All-Party Parliamentary Group on Steel and Metal-Related Industries are 10 Yorkshire MPs whose constituencies are part of the steel industry, with officials from Tata Speciality Steels in Stocksbridge and Rotherham Council also contributing.

Yorkshire still plays a key role in what remains of the industry, with one in three aeroplanes in the world containing steel made at Tata’s site in Stocksbridge and Sheffield Forgemasters continuing to supply products for the British military.

And while it’s now reliant on an 18,000-strong workforce and has recently been enveloped in a series of crises - such as the closure of the Redcar steel works and the Tata sell-off plans - there is renewed hope that it can not only survive, but thrive with the right support.

19 July 2016 ...Tour of Tata Steel in Rotherham and Stocksbridge to view the high standard of steel produced those sites. Picture Scott Merrylees

Among the ideas being put forward for consideration are subsidising electricity costs for steel firms and passing on the extra expense to ordinary consumers, as already happens in Germany. It notes British steel firms are paying £50m per year more in electricity costs than their German counterparts.

“This is not special pleading for charity,” says the report. “Rather, it is the game changer that will free up capital to invest in improving energy efficiency and creating a level playing field with respect to global competitors; something that may be easier to achieve outside the EU. Leaving the EU should now be seized upon as an opportunity to go further and faster than continental partners in shaping an energy policy that supports UK industry.”

Steel 2020 report researcher Dr Ian Greenwood, associate professor of industrial relations and human resource management at the University of Leeds Business School, admits introducing such a policy would be ‘politically courageous’ but believes state intervention of different kinds need serious consideration. The report also suggests that similar deals to the controversial one offered to car firm Nissan to stay in Sunderland should also be provided to steel companies.

“A diminished steel industry could tip the balance away from car industry investment in the UK. The support that the Government has promised to Nissan in the form of investment in skills, research and reshoring supply chains needs to be applied to the steel industry,” it says.

19 July 2016 ...Tour of Tata Steel in Rotherham and Stocksbridge to view the high standard of steel produced those sites. Picture Scott Merrylees

It points to research which suggested the loss of Tata Steel alone would cost £4.6bn in lost tax revenue and benefits over the next 10 years with 40,000 jobs going both at the company, its supply chain and local firms which rely on its workers for business.

The challenges and opportunities for the industry following the referendum result is perhaps best summed up by the fall in the value of the pound.

The report explains that the 15 per cent drop in the value of the pound since last June has helped steel exports in the short-term - but also led to concerns that ‘the same devaluation could drive up the cost of the raw materials which UK steelmakers have to import - the coke, the coal, the iron ore and energy - some of which have seen astronomical price increases’.

But it adds that along with the risks, especially in connection with failing to secure a good trade deal with the remaining 27 members of the EU, there are opportunities to set the industry’s future on a new path.

19 July 2016 ...Tour of Tata Steel in Rotherham and Stocksbridge to view the high standard of steel produced those sites. Picture Scott Merrylees

“Alongside the short-term boost from the fall in the value of the pound, there will be broader global opportunities for selling which could benefit from being without EU trade restrictions. It may also give the Government the opportunity to give support to steel companies without having to wait for EU State Aid rules clearance.”

The report’s key recommendations also include the introduction of new policies to ensure British steel is used as much as possible in public projects, while the Government is also being asked to act to ‘incentivise’ key parts of the steel supply chain to return to UK bases from abroad so fewer products are sent abroad for final processing.

A National Bank for industry to provide support for investment is also wanted, as is a national review of business rates that remove ‘perverse incentives’ that penalise steel firms from investing in their sites because they become subject to higher taxes.

The report notes that the Government could potentially have ‘greater flexibility’ on business rate changes outside of the EU.

Those in the industry are clear that striking a good trade deal with the EU will be ‘crucially important’ to steel’s survival. Tim Morris, from Tata Steel, says: “We export three times as much steel to the EU27 as we do to all the other export markets put together. So the terms of the trade between the UK and the EU27 will be absolutely critical to us.”

In 2015, 52 per cent of steel exports from this country went to other EU nations, compared to 12 per cent to America. The report calls for steel to be a priority area in the negotiations to leave the EU, with suggested objectives including the ‘best possible access to the single market’.

Forgemasters plant in Sheffield

While the report notes that ‘worrying uncertainties’ of Britain’s departure from the EU which have already seen credit insurance companies adjusting risk on steel firms, it also makes clear that Brexit should force the Government to rethink its approach to the industry.

“One benefit of Brexit is that the UK Government will need to be clear about its own perspective on the UK steel industry and set out its own strategic policy position. There is now an opportunity to develop a UK strategy for trade and other policy areas including emissions and it must be seized.”

The Steel 2020 report was published on the same day that Theresa May launched a consultation on the new national industrial strategy this week by saying Brexit offers the opportunity to the change the way the country works forever - with industry a key part of her plans to build a ‘stronger economy and a fairer society’.

The parallel Steel 2020 report warns the industry has reached a fork in the road. “If urgent and strategic action is not taken, our industry will continue to decline and will not survive, let alone flourish in the new era. The steel industry and its communities are in an increasingly and unrelentingly precarious position.”

MPs believe the regulatory action required from the Government should also include the development of a clear post-Brexit trade strategy that tackles the problem of illegal Chinese steel dumping driving down prices.

Since 2011, as Chinese exports of steel - backed by state subsidies for manufacturers - have risen by 133 per cent and driven down global prices, 5,000 jobs have been lost in the British steel industry. But tackling Chinese steel dumping will require a change of policy - last year the Government helped block plans by other EU members to introduce higher tariffs on the grounds it would lead to higher prices for UK consumers of steel.

The Steel 2020 report suggests: “Brexit can neither be an excuse for inaction or over-reaction, nor can it be an excuse for ignoring the root cause of much of the steel industry’s trade-related problems; that being excess steel capacity in China and the subsequent illegal dumping of this excess steel. It must be a catalyst for renewed endeavour.

“Leaving the EU could allow the UK Government to take greater action to tackle dumping, similar to that taken by former President Obama in the USA, by imposing punitive tariffs on Chinese excess steel. This would go a long way to tackle the industry’s trade-related problems.”

The lack of reference to steel in the Government’s draft industrial strategy was described in Parliament as ‘pretty astonishing’ by Labour MP and chair of the Steel 2020 sub-committee Stephen Kinnock. But Business Secretary Greg Clark responded by saying it was ‘nonsense’ to suggest steel had been airbrushed out of the strategy and that members of the steel industry were ‘excited’ about the Government’s plans.

Dr Greenwood says while the Government green paper was ‘disappointing’ for its omission of details about steel, he is hopeful his findings will be taken into consideration by the Government as future industrial strategy is drawn up. He says the idea of a national industrial strategy has only been welcomed by Government in relatively recent times as work on the report was progressing.

“It is about state intervention. For Conservative governments by and large it has been off the table, even Labour governments have not been willing more recently to operate an industrial strategy. Towards the end of 2015, the steel crisis really began. Teesside was badly affected and Tata decided it was possibly going to divest itself. Lots of jobs were on the line. That for the Government was very embarrassing and really pushed them into having to act. If the Government is committed to a strategic approach to the UK steel industry, not quick fixes, then negotiations between the industry and the Government to what steel looks like post-Brexit should follow. I’m optimistic as it seems leading politicians do understand or are beginning to understand.”

‘Don’t repeat the loss of the coal industry’

A Yorkshire MP has warned the Government must not let steel-making go the way of the coal industry.

John Healey, a member of the APPG group and MP for Wentworth & Dearne, which includes Tata Steel’s Aldwarke plant, says: “No one in South Yorkshire forgets the damage Margaret Thatcher’s Tory government did to the coal industry. Whole communities had their economic livelihood taken away and we’re still feeling the effects more than 30 years later.

“We can’t let the same thing happen to the steel industry and its highly skilled workers.

“UK steel-making is a foundation for much of our wider world-class British manufacturing and no modern country can flourish without steel as one of its strategic industries.

“We need a bold, risk-taking government that stands shoulder to shoulder with business in the creation of new jobs and industries.”

19 July 2016 ...Tour of Tata Steel in Rotherham and Stocksbridge to view the high standard of steel produced those sites. Picture Scott Merrylees
19 July 2016 ...Tour of Tata Steel in Rotherham and Stocksbridge to view the high standard of steel produced those sites. Picture Scott Merrylees
19 July 2016 ...Tour of Tata Steel in Rotherham and Stocksbridge to view the high standard of steel produced those sites. Picture Scott Merrylees