Scunthorpe’s steel salvation? Why the government has taken control of British Steel

After mismanagement (or even “sabotage”) by its Chinese owners, the government stepped in over the weekend to secure control of the British Steel plant in Scunthorpe. Their emergency powers could result in nationalisation and save over 2000 jobs. But the clock is ticking: if the site cannot rapidly get the resources it needs to remain operational, it could still collapse, with enormous consequences to national security and the soul of the Lincolnshire town.

Source: Ludomil Sawicki

An emergency session saw MPs recalled to parliament on Saturday for a vote on the future of Scunthorpe steel manufacturer, British Steel. 

The law passed control of the site into the hands of the government, but the plant has not yet been nationalised and remains under the ownership of Chinese firm Jingye.

The potential closure was the latest in a string of crippling events to the national steel industry, which last year lost 2800 jobs at Tata Steel in Port Talbot, Wales. 

So why was saving the Scunthorpe plant such a priority for the government, and what will happen to it next?

The steel decline

Global events have had a major impact on the steel industry over recent years.

Firstly, Chinese manufacturing has saturated the market with the material, meaning supply is outstripping demand. The cheaper Chinese product allows it to dominate the market. Britain, with higher production costs such as labour, cannot compete with these prices, weakening its sales.

Then, there is the spiralling cost of energy. Operating blast furnaces - the ovens in which iron ore is smelted into liquid steel - is a costly business, and since energy expenses can be anywhere between 20%-40% of the entire production cost, profit margins are easily hammered by fluctuations. Electricity in the UK is up to 50% higher than in some European countries, so British Steel is at a competitive disadvantage even with other Western suppliers. 

More recently, Trump’s tariffs have added weight to the sinking ship. Despite rowing back on his higher-rate tariff regime, a 25% levy still applies to steel and aluminium goods entering the US, which could cause inflationary action and further reduce demand.

All of these threads have made British Steel highly unprofitable, with Jingye suggesting it was losing £700,000 every day by maintaining operations. 

Lacking a turnaround strategy and foreseeing nothing but losses for the remainder of its contract, there is belief in Whitehall that Jingye, having bought British Steel in 2019, began neglecting the plant in a mission to ensure its closure. 

These doubts were reaffirmed when the firm declined a £500 million government package to help business continuity. It has also transpired that it not only stopped shipping in the raw materials needed to keep the blast furnaces on, such as coking coal and iron pellets, but actively began to sell its reserve supplies, effectively incapacitating its own production line. 

By ensuring operations failed, Jingye could save itself billions in unspent investment, which its contract stipulated it would have to maintain until 2030. A cynic might even go so far as to suggest its strategy was always to intentionally decimate the UK’s steel industry in an effort to make the country reliant on China. 

While the bill was being debated in parliament, executives from Jingye tried to gain access to the site. Trade unions intervened over fears they would commit “industrial vandalism” within the plant, an allegation Reform UK leader Nigel Farage doubled down on when he accused Jingye of “sabotage”. 

Deputy Prime Minister Angela Rayner told the BBC this afternoon there was no evidence of sabotage, but the accusation alone demonstrates the low levels of faith the community had in Jingye’s management of British Steel. 

Why has the government stepped in?

It might seem odd for the government to put so much effort into what seems to be a bad investment. If the plant is bleeding so much money, would it not be better to let it close rather than taking on such a financial burden?

There are several reasons keeping British Steel operational is within the government’s - and the public’s - interest. 

The most obvious is jobs. 2700 people are employed on the site, a significant proportion of the Scunthorpe workforce. The town is considered a monotown: the steel industry is the primary employer in the region, meaning its loss could plunge the population into deprivation. 

Business Secretary, Jonathan Reynolds, told the BBC he believes the cost of closing the plant, laying off the workforce and losing steelmaking capacity could reach £1 billion for the taxpayer.

Keeping it open will be costly too - but new infrastructure projects prioritising Scunthorpe steel, such as the Universal Studios theme park in Bedford and the Small Nuclear Reactor contract soon to be announced, could throw a lifeline to the industry if they win such tenders. 

Even if a profit cannot be turned, there is another significant motive to keeping British Steel operational: its role as the last remaining virgin steel producer in Britain. 

Virgin steel is made from iron ore rather than recycled steel, making it stronger and more durable than impure alternatives. It is the essential ingredient in nuclear submarines, naval vessels, offshore wind turbines, railway tracks and power stations. 

Losing the capacity to produce virgin steel is therefore a security threat, ceding control over essential British infrastructure to foreign powers. If we suddenly enter an altercation with China or other steel exporters, they could disrupt our supply chain. 

Tom Tugendhat, Conservative MP for Tonbridge and ex-Security Minister, posted on X: “Without the ability to make virgin steel, we lose control over sovereign defence, critical infrastructure, and advanced engineering.”

To mitigate the risks of job losses and this security factor, a bill was debated in the House of Commons over the weekend to place control of British Steel into the hands of the government. It was the first Saturday recall of parliament since the start of the Falklands War, highlighting the urgency felt by Prime Minister Sir Keir Starmer in solving the crisis. 

The motion was passed without opposition from rival parties and fast-tracked into law in just one day. It was popular across the benches given its emphasis on maintaining British industry and security, although the Conservatives questioned why the intervention had come so late when Jingye’s mismanagement had been known about for weeks. 

The bill has also opened the door to challenges of double standards. Plaid Cymru wants to know why the same emergency processes were not on the table when Tata Steel closed down its blast furnaces in Port Talbot last year. The Welsh plant secured private investment and will remain operational, but its transition to a less labour-intensive electric furnace still resulted in a cull of 2800 jobs.

Labour have retorted that it was the Conservative government who negotiated that deal, and their revision of it once taking office was actually an improved agreement. They maintain the fact Tata still attracted a takeover bid makes the Port Talbot and Scunthorpe situations incomparable. 

What happens now?

The emergency bill has deferred authority over the Scunthorpe site’s operations, workforce and board to the Business Secretary, Mr Reynolds, while the daily £700,000 running costs are now being drawn from the Treasury’s £2.5 billion steel fund. 

However, Jingye remains British Steel’s owner, meaning it has not been nationalised. It’s a short-term solution, and the priority now is to find a new investor to take over the plant. That might be wishful thinking given its unprofitable outlook, and Mr Reynolds has confirmed the unlikeliness of sourcing a willing buyer. 

Nationalisation, in which the taxpayer takes over ownership, therefore remains the likely outcome. Mr Reynolds puts the cost of this at lower than the £1 billion loss that would have been felt by the plant’s closure.

But the BBC predicts over £6 billion of investment is needed to futureproof its viability by replacing its decrepit blast furnaces with low-emission and low-expense electric alternatives, like in Port Talbot. 

A decision on nationalisation is expected in the next two weeks, and has attracted both public and cross-party support. Politicians with as varied stances as Nigel Farage, Jeremy Corbyn and Green MPs are all in favour of bringing British Steel into public control. 

In the meantime, the urgency is ensuring it remains operational. 

Its blast furnaces - the last two in the UK - are incredibly expensive, potentially even impossible, to restart once they have shut down. The government and the civil service are working in overdrive to ensure deliveries of the raw materials necessary to keep everything functional. 

To aid this effort, the Royal Navy is on standby to escort fuel shipments to Scunthorpe, while competitors such as Tata and Rainham Steel have offered to supply resources and managerial support in an act of industrial allyship. 

It’s a race against time. If the blast furnaces stall, there might not be a British Steel to be nationalised. Its collapse would have geopolitical repercussions and leave the UK at the mercy of international suppliers. 

But at the heart of all of this is the Scunthorpe community, with a history and a landscape intrinsically linked to steel production. Letting the glow of its forges dim to black would not just be a matter of industrial decline for the Lincolnshire town, but the extinguishing of its very soul.