Policy Explainer  Why was British steel nationalised?

Burning Issue

The Chinese owners said the blast furnaces were ‘no longer financially sustainable’ and blamed ‘highly challenging’ market conditions, tariffs and costs associated with moving to lower-carbon production techniques.

UK steel production has been falling for several decades and the financial pressures facing the industry came to a head in March when the US imposed a 25% tariff on any steel it imports.

Global over-production has created ‘a glut of steel on the international market’, which has pushed prices down, making it very difficult for higher cost British steel producers to compete. Much of this excess, cheap steel was produced in China. British manufacturers also face higher costs, particularly on electricity, than elsewhere.

Industry statistics provide a stark insight into the predicament that British steel producers find themselves in. In 2023, the UK produced 5.6m tonnes of crude steel, or 0.3% of the world’s total. In comparison, China produced more than 1,000m tonnes, 54% of global production.

The EU produced 126m tonnes of steel in 2023, 7% of the world’s total. Compared with EU countries, the UK ranked as the eighth largest steel producer, after Germany, Italy, Spain, France, Austria, Poland and Belgium.

Race Against Time

Scunthorpe is the last plant in the UK producing virgin steel, which is used in large construction, infrastructure and defence projects. It has fewer imperfections than the recycled steel made elsewhere in the country.

If it stops producing virgin steel, the UK would be the only member of the G7 group of leading economies without the ability to make it. Government took the view that it was a risk to the UK’s economic security.

The Prime Minister recalled Parliament during the Easter holiday in order to push through emergency legislation that would enable the government to take control of British Steel, effectively nationalising it.

However, ministers then faced a race against time to keep Scunthorpe’s two blast furnaces running because the supplies required – coking coal and iron pellets – were running low. Without sufficient supplies, the furnaces would stop working and the molten metal inside them would cool and solidify, making it extremely difficult to restart them.

British Steel’s travails are by no means unique. There are 1,160 businesses in the UK steel industry, directly supporting 40,000 other firms, according to government figures. Tata Steel in Port Talbot, South Wales, was once the largest virgin steel producer in Britain but it turned off its blast furnace in September 2024, saying it was losing £1.7m a day. With the help of the UK government it is laying off staff and moving to greener forms of steelmaking.

Other steelmakers in the UK include Liberty Steel, Celsa, Marcegaglia and Outokumpu. Liberty Steel also has a plant in Scunthorpe which is facing closure, with more than 120 jobs at risk as bosses blame high energy costs.

Blame Game

The British Steel debacle ignited a diplomatic row between the UK and China, with accusations that Jingye’s close relationship with the Chinese state was part of the plan to squeeze Britain out of the global steel market.

Jonathan Reynolds, business secretary, said it had become clear that Jingye intended to ‘refuse’ to buy enough material to keep the furnaces running, and ‘to cancel and refuse to pay for existing orders’.

Reynolds also appeared to announce that Chinese companies were no longer welcome in Britain’s steel industry. Asked whether he would bring a Chinese company into the British steel industry in future, he told Sky News: “I wouldn’t, no. I think steel is a very sensitive area.”

The British government had also been “far too naive” in the past about UK-Chinese trade, he added.

Beijing’s embassy in London said the ‘anti-China rhetoric of some individual British politicians is extremely absurd’.

Jingye said it would ‘seek a proper solution that ensures a bright future for British Steel’ and noted that it had previously safeguarded jobs and made investments in the plant, despite it notching up losses of £350m since taking over the Scunthorpe works in 2020.

Downing Street appeared to row back on Reynolds’ suggestion, saying the UK government would take a ‘consistent, long-term strategic approach to managing relations’ with Beijing and would not rule out allowing a Chinese buyer to take over domestic steel assets in future.