British Steel: Is Nationalisation the Answer?

Co-founder of Whole Nation Conservatives Miranda Jupp is a longstanding North East Conservative activist and former council candidate. Prior to the 2024 General Election she was Chief of Staff to Sir Simon Clarke.

With negotiations between Jingye, the Chinese owners of British Steel, and the Government over investment to future proofing steel production in the UK having stalled, we appear to be in a situation where bulk steel production in the UK could cease in the coming weeks. This would have significant implications: not only are the steelworks (and associated businesses in the area) are hugely significant to the local economy in Scunthorpe, with the loss of a large volume of well paid jobs likely to have enormous socio-economic repercussions, but in an increasingly dangerous geopolitical environment, the loss of domestic steel making capacity would constrain our ability to meet our defence needs without increasing reliance on imports.

In this context, it is perhaps unsurprising that there have been calls to nationalise the business from different parts of the political spectrum. Given the security advantages of maintaining steel production as a sovereign capability, calls for public ownership shouldn’t be dismissed simply as a left wing priority (indeed it is notable that Reform have been at least as vocal in calling for nationalisation as the Labour left). It is however also clearly irresponsible to suggest that it is somehow viable for the taxpayer to take on liability for the reputed £700,000 a day of losses the existing business is experiencing without a clear strategy for returning operations to a financially viable state.

It is important to understand the challenges which have led to the current situation: after all, Jingye only acquired the assets which make up the current incarnation of British Steel in 2020, when they announced a £1.2 billion investment plan intended to put the business on a sustainable footing, after a short period in which the Conservative Government had stepped in to allow the business to continue operations following the liquidation of the business in 2019, which had been under the ownership of Greybull Capital since 2016.

One of the biggest issues which the UK steel industry has struggled with in recent years is the cost of energy: UK industrial electricity prices are the highest in the world. This would continue to be a barrier to profitability if British Steel were nationalised, and fixing it requires serious consideration by Government of both pricing mechanisms and the barriers to increasing energy production (Elinor Bale from the Conservative Environment Network has written an excellent column on this topic for CityAM this week which provides a very good overview of the energy costs challenge and some steps towards solutions (1)). Failure to tackle this issue will make it increasingly hard for Britain to be competitive not only in manufacturing, but also in power hungry new growth sectors such as AI.

Another concern is the resistance of the Unions to modernisation: the previous Conservative Government was close to agreeing a deal with British Steel to support the transition to greener steelmaking, which would have seen production at Scunthorpe continue whilst construction was underway on state of the art Electric Arc Furnaces, the first of which would have been on Teesside (adjacent to the existing British Steel Teesside Beam Mill) due to the ready availability of the required grid infrastructure. Despite planning permission for the Teesside project being in place, these plans have stalled following the General Election, with the apparent block being Union resistance to job losses at Scunthorpe. Whilst it is understandably incredibly difficult for employees at risk of redundancy, clinging to less efficient technology and working practices undoubtedly hampers the ability of the industry to modernise and hence offer products which are competitive in an international market place.

Global pressures have also exacerbated the scale of the challenge faced by British Steel: from Trump’s instigation of a 25% tariff on steel imports to the US to the ongoing challenges presented by Chinese steel dumping, the international marketplace is a tricky one for less specialised steel products.

So with all these challenges in mind, what is the best Whole Nation approach to handling the current situation with British Steel? The first duty of Government is to ensure the safety and security of our country, therefore there is a compelling case for taking steps which will enhance our ability to defend the UK without relying on imported steel. However, at a time when the public finances are subject to significant pressure as a result of demographic pressures, high borrowing costs and weak economic growth, it would be irresponsible to commit a blank cheque to maintaining business as usual: to do so would place an additional burden on taxpayers, and reduce funding available for other priorities.

It seems unlikely in the current context that it will be easy to find an alternative private owner for British Steel in a short time frame in the manner new ownership was facilitated by a short term commitment from Government in 2019-20. It is therefore likely that a move into public ownership would not be a minor undertaking. It is however plausible that if the Government is prepared to address some of the domestic factors which have made viability difficult to achieve then there may be a route to sustainable sovereign steel production in the medium term. With a clear strategy in place on these issues, nationalisation may prove the most realistic option to bridge the gap whilst these issues are addressed, with the option of future privatisation to secure additional investment remaining open.

From the Government’s perspective, taking action to reduce energy costs must be appealing. Whilst it won’t happen overnight, going for energy abundance makes political and economic sense as we explored last November (2). Whilst some of the necessary changes to planning and regulation may be contentious in some circles, this is a priority which has broad popular support. A blueprint for cheaper power would undoubtedly make it easier to map a future for British Steel, as well as making the UK a more attractive destination for investment in other energy intensive projects.

However, the other factor over which could be controlled as part of a strategic approach to nationalisation is more politically challenging: the need to modernise, and embrace investing in new, more efficient technologies, even where that does mean that the number of people employed in their current roles does reduce. Resistance to this necessity (and the plans to focus on the Teesside EAF to maintain continuity of production) has contributed to the urgency of the current discussions around British Steel’s future. If the Government goes down the nationalisation route, they owe it to the taxpayer to be honest about the impossibility of maintaining the status quo. This will mean that significant efforts will need to be made to support those workers who are required to upskill or reskill as some jobs disappear, but the socioeconomic harm of managed change of this nature will be far less severe than the pain which would be felt across the business ecosystem around the Scunthorpe works if steel production ceases permanently and suddenly, which currently seems a very real threat. This is not an easy discussion to start with workers or trade unions, but the courage to explain the scope of realistic options is essential to securing a viable future for large scale British steelmaking.

From a Whole Nation Conservative perspective, once a modernisation plan has been developed, a potentially attractive route for seeking investment in future upgrades would be a retail share offer. As highlighted by James Vitali in his excellent Policy Exchange paper on The Property Owning Democracy (3), reversing the decline in retail investment through a ‘Tell Sid’ (4) style advertising campaign has potential to extend the benefits of share ownership (and hence the number of people with a stake in the capitalist system) - a future focused British Steel would undoubtedly be a consumer friendly offer for a scheme of this nature.

So is nationalisaton the answer to secure a future for British Steel? Possibly, and we shouldn’t write it off for ideological reasons. There are historical precedents for nationalisation allowing flagship British brands to bounce back from specific challenges before returning to (and thriving in) the private sector - Rolls-Royce was nationalised upon liquidation in 1971, sold through a public share offering in 1987, and today is a world leader in its field responsible for 2% of total UK goods exports (5). But caution is needed: without a proper plan, the story could equally be one of managed decline at the taxpayers’ expense.

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British Steel: Is Nationalisation the Answer?

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