How to save British steel

By Sir John Redwood - a former MP for Wokingham, Secretary of State for Wales and Economic Affairs columnist. He blogs regularly at his diary.

On Saturday 12 April 2025, the British government pushed Parliament to legislate to take control of the operations at British Steel in Scunthorpe, and to agree to pay the bills to keep the two ageing blast furnaces there open. The headline was the government was saving the jobs. The Chinese owners were said to be about to close the works as it was heavily loss making.

This was done without the consent of the Chinese and without transferring ownership of the plant. Some of us at the time said it would be best to reach an agreement with the owners about the transfer, and to find a private sector partner who knew how to run a steelworks to continue production.

Fifteen months on and things are going badly. The stated losses of £700,000 a day under the previous owners have escalated to a quoted £1.3m a day. The National Audit Office says state losses of £642 m have been recorded up to this June, and they forecast a continuing large loss at the these levels going on for the next two years.

There is no approved Treasury estimate covering the losses. Ministers seem to be paying the bills out of the overall £2.5bn voted for steel modernisation. When this was first agreed it was assumed it would be grant money to private sector companies to help them put in more electric arc steelmaking capacity in line with the government’s decarbonisation objectives. A grant was agreed to help pay for the transition from blast furnace to electric arc in South Wales. Both the Conservative and the Labour governments have discussed a similar arrangement for Scunthorpe.

We await a business plan and the first annual report on what the state directed company has achieved. Meanwhile, we read that the Chinese owners are demanding £1bn of compensation for the takeover of their interests. The Government is putting a Bill through Parliament to give it powers for a period of two years to acquire any private sector UK steelmaking business or plant. This is a general power, but Ministers state openly that it might well be used to acquire the assets and/or British Steel, the company, from the owners. This would represent a necessary tidying up of the messy position the emergency Act of 2025 has created.

It is important both that the Government reaches agreement about the acquisition, and that it does not pay compensation for the transfer of title to the plant. This is not going to be easy as the Chinese are clearly unhappy about what happened in 2025. The UK should not want to get a reputation for seizing foreign owned assets when it suits it, as that would put off much needed inward investment.

The Government does need to persuade the Chinese owners that as it is saving them large redundancy costs and taking over all the environmental, staff, safety and product liabilities it does not owe them any compensation. This is a case where given the large losses and liabilities arguably paying the owners £1 for the whole thing would be very generous. Companies in such bad financial condition as this one may well have a negative value as going concerns.

The Government remains muddled in a way which should disturb the employees at British Steel. How long will they keep the two blast furnaces running? Don’t they still plan to close them and replace with more electric arc steel making? There has been no change of the decarbonisation plan or the carbon targets. If they plan to close the blast furnaces before electric arc capacity has been built most of the jobs go. If they await a new facility maybe half the jobs go.

In the debates on the Steel Bill in the Lords, I have asked for a condition report on Bess and Anne, the two blast furnaces built or modernised in the 1950s that are still in use. How much longer can they run before they need to be cooled down for major maintenance? I have asked for a Business Plan to see what actions the Government think the management can take to sell more product and or to cut the costs of production to start to reduce the huge losses. I have asked how much it will cost to clean up the site and if there are any other longer term staff or health or product liabilities. We need clarification of the budgets and cash demands on taxpayers, with a proper opportunity for Parliament to debate the large spending being committed.

UK steel output fell under the last government to 5.6m tonnes in 2023, around half the UK’s required supply. It has more than halved from that poor level under this government. Last year we imported 7.1m tonnes and produced around 2.5 m tonnes. I agree with the Government that we need a larger steel industry for national security reasons. But unlike the current government I know we cannot afford such an industry all the time we impose carbon taxes, emissions trading schemes, high taxes on energy and other costs making our steel uncompetitive. Saving the steel industry needs to start with a policy for cheap energy.

This government has made a bad mistake in taking over the operations at British Steel in this foolish way. They need to resolve ownership, find a private sector partner, draw up more realistic budgets for Parliament to debate, and produce a convincing Business Plan. That need not reveal commercial secrets but the Plan does need to show a plausible pathway to lower costs and more sales of product. The current losses are out of control.

Ministers seem unable to provide a convincing justification for their actions so far, or to produce realistic budgets and levels and subsidy to make anyone think this semi nationalised steelworks has a good future. Surely they owe it to the employees in Scunthorpe to tell us what the future is for blast furnace steel in their planned net zero world? They owe it to taxpayers to tell us what is likely to cost.

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