Should the UK taxpayer be helping Tata Steel to sort out Port Talbot chucking them money to keep it open or just plain nationalising it? On the face of it, the answer is a clear no. The book value of the plant's assets, as the finance director points out, is "almost zero", and the value of the business as a whole is also basically zero (or less it is losing £1m a day).
That's down to a variety of things. First there is the cost of doing this kind of business in the UK. Think business rates (Tata, says The Times, has been paying ten times the rates of its French and German rivals).Think pension deficit: the age of low interest rates has left a vast deficit in a 130,000-member scheme.Think green levies. Fraser Nelson explains this here. You can read his piece or just take the gist from its title: "How is Britain going green? By shutting down industry".
Thanks to the Carbon Price Floor and the Renewables Obligation, energy costs for running steel plants in the UK are 25% more than they would be in Germany and 50% more than they would be in France.Electricity costs only account for 6-8% of total costs. Still, this is something for all those calling for the business to be nationalised to think about given that they will be many of the same people who demanded that Britain went more green than everyone else in the first place.
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Finally think supply side crisis. The world is in a state of chronic over-supply of almost everything (thanks to low interest rates, to Chinese growth policies and the like), something that is clearly reflected in the global price of steel. The UK has a very high-cost industry operating in a very low-price world. That isn't sustainable.
Bailing out steel isn't like bailing out banking. The later is an industry that we have a competitive advantage in and that post a short-term solvency crisis was always going to return to profit and long-term sustainable profit. None of that is true of steel. Rescuing would simply condemn the taxpayer to many, many years of supporting a failing industry (unless we change our tax system, row back on the OTT bits of our green policy, raise interest rates sharply to wipe out the pension deficit, and abolish China of course).
Why would we want to do that? The only possible answer has to be "strategic" and it is the answer all our grandstanding politicians fall back on whenever the other arguments have been explained to them. But is "strategic" enough?
Sure, it might be a good idea for the UK to have a small and super-high-quality steel industry just in case we end up in a physical war against everyone else who makes steel or we can't buy enough on the open market to complete HS2 (this stuff is so slow it is entirely possible the global oversupply will be gone by the time we get going). But I'm not sure that Port Talbot quite fits that bill.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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