'It’s time to close the British steel industry'

British steel industry worker in Sheffield

(Image credit: Dominic Lipinski/Bloomberg via Getty Images)

It was possibly the worst news the industry could have received. Last week, the EU set out plans to cut the amount of steel it allows to be imported into member countries by half and impose tariffs of 50% on top of anything above that. With US president Donald Trump imposing steep levies on imports into the US, the EU is worried that manufacturers will start dumping excess production in Europe instead. It may well have a point. After all, there are not many other places it can go, and production can’t be wound down very quickly. Almost 300,000 people still work in Europe’s steel industry, with an estimated 2.5 million jobs dependent on its supply chain, and it can hardly afford to give those up. Tariffs are an obvious response.

That will hit British manufacturers harder than anyone. The EU is the largest market for steel made in the UK, with exports worth £3 billion a year. And it was not as if the industry was in great shape to begin with. Even with the trade deal that was agreed with Trump over the summer, the industry is still likely to face tariffs in the US after the government failed to reach a deal to exempt it. And it has been struggling with the highest industrial electricity prices in the developed world. Power in the UK is now twice the price of that in France and four times the price in the US. Given that energy can account for up to 40% of the costs of a steel plant, that has made British producers hopelessly uncompetitive on global markets. Add in higher wage costs, land prices and taxes, and it is very hard for most plants to compete. An extra 50% tariff in the EU will surely make it impossible. Exports will inevitably dwindle away to nothing.

It’s net zero or British steel, not both

Over the next few weeks, we can expect ministers to scramble around looking for a solution. They may offer big concessions to the EU to avoid the tariffs, such as conceding a youth mobility scheme. But that will just create problems elsewhere. British university and school leavers are already facing a huge shortage of jobs and it is hard to see how more competition from the EU will help that; or it could offer yet another round of subsidies and state aid. Almost half of steel production is now effectively controlled by the state. But the government is already strapped for cash and hardly in a position to offer open-ended subsidies to the steel industry.

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Right now, the government is stumbling towards a half-hearted nationalisation. It has already taken control of British Steel, with a plant in Scunthorpe, earlier this year, while Liberty Steel, with plants in Rotherham and Stocksbridge, collapsed into government control last month. The plan, apparently, is to keep them alive while the government looks for a buyer, but there don’t seem to be any takers, and the tariffs from the EU make it unlikely any will emerge now. Half the industry has already been effectively nationalised, and the other half may not be far behind.

It is time for the government to make a grown-up decision. The steel industry should be closed down. It has been getting less and less competitive for years. It will soon be locked out of both the US and European markets by tariffs. The domestic market is not big enough to support it by itself, and with the accelerating deindustrialisation of the economy, it is getting smaller all the time. The unions and Labour MPs will demand subsidies to keep the industry and jobs alive. That would be a huge mistake. It will prove to be a waste of money that could be better spent elsewhere. Perhaps more importantly, closing down the steel industry will force the country to face up to the fact that successive governments have destroyed the industrial base through green regulations and soaring energy costs.

That would make the UK the first major developed country without any form of capacity to manufacture steel. And that will be a huge strategic weakness. But there is no point pretending the UK can still be an industrial power while also leading the world on hitting net zero. The country will have to make a choice. The steel industry can’t stagger on in its current form and we can’t afford the subsidies. It would be better to let it fade away and focus instead on those industries that can still be saved.

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Matthew Lynn is a columnist for Bloomberg and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.